T.ROWEPRICE
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T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD 21202
James S. Riepe
Managing Director
Dear Shareholder:
All of the T. Rowe Price mutual funds will hold shareholder meetings in
1994 to elect directors, ratify the selection of independent accountants, and
approve amendments to a number of investment policies.
The T. Rowe Price funds are not required to hold annual meetings each year
if the only items of business are to elect directors or ratify accountants. In
order to save fund expenses, most of the funds have not held annual meetings
for a number of years. There are, however, conditions under which the funds
must ask shareholders to elect directors, and one is to comply with a
requirement that a minimum number have been elected by shareholders, not
appointed by the funds' boards. Since the last annual meetings of the T. Rowe
Price funds, several directors have retired and new directors have been added.
In addition, a number of directors will be retiring in the near future.
Given this situation, we believed it appropriate to hold annual meetings
for all the T. Rowe Price funds in 1994. At the same time, we reviewed the
investment policies of all of the funds for consistency and to assure the
portfolio managers have the flexibility they need to manage your money in
today's fast changing financial markets. The changes being recommended, which
are explained in detail in the enclosed proxy material, do not alter the
funds' investment objectives or basic investment programs.
In many cases the proposals are common to several funds, so we have
combined certain proxy statements to save on fund expenses. For those of you
who own more than one of these funds, the combined proxy may also save you the
time of reading more than one document before you vote and mail your ballots.
The proposals which are specific to an individual fund are easily identifiable
on the Notice and in the proxy statement discussion. If you own more than one
fund, please note that each fund has a separate card. You should vote and sign
each one, then return all of them to us in the enclosed postage-paid envelope.
Your early response will be appreciated and could save your fund the
substantial costs associated with a follow-up mailing. We know we are asking
you to review a rather formidable proxy statement, but this approach
represents the most efficient one for your fund as well as for the other
funds. Thank you for your cooperation. If you have any questions, please call
us at 1-800-225-5132.
Sincerely,
SIGNATURE
James S. Riepe
Director, Mutual Funds Division
CUSIP#779551100/fund#054
T. ROWE PRICE GROWTH & INCOME FUND, INC.
NOTICE OF MEETING OF SHAREHOLDERS
APRIL 20, 1994
The Annual Meeting of Shareholders of the T. Rowe Price Growth & Income Fund,
Inc. (the "Fund"), a Maryland corporation, will be held on Wednesday, April
20, 1994, at 9:30 o'clock a.m., Eastern time, at the offices of the Fund, 100
East Pratt Street, Baltimore, Maryland 21202. The following matters will be
acted upon at that time:
1. To elect 11 directors to serve until the next annual meeting, if any,
or until their successors shall have been duly elected and qualified;
2. A. To amend the Fund's fundamental policies to increase its ability to
engage in borrowing transactions;
B. To amend the Fund's fundamental policies on investing in
commodities and futures contracts to permit greater flexibility in
futures trading;
C. To amend the Fund's fundamental policies to increase its ability to
engage in lending transactions;
D. To amend the Fund's fundamental policies to increase the percentage
of Fund assets which may be invested in the securities of any
single issuer;
E. To amend the Fund's fundamental policies to permit the Fund to
purchase more than 10% of an issuer's voting securities;
F. To amend the Fund's fundamental policies concerning real estate;
G. To adopt a fundamental policy on the issuance of senior securities;
H. To change from a fundamental to an operating policy the Fund's
policy on control of portfolio companies;
I. To change from a fundamental to an operating policy the Fund's
policy on investing in other investment companies;
J. To change from a fundamental to an operating policy the Fund's
policy on purchasing securities on margin;
K. To change from a fundamental to an operating policy the Fund's
policy on pledging assets;
L. To change from a fundamental to an operating policy the Fund's
policy on investing in oil and gas programs;
M. To change from a fundamental to an operating policy the Fund's
policy on investing in options;
N. To change from a fundamental to an operating policy the Fund's
policy on ownership of portfolio securities by officers and
directors;
O. To change from a fundamental to an operating policy the Fund's
policy on purchasing illiquid securities;
P. To change from a fundamental to an operating policy the Fund's
policy on short sales;
Q. To change from a fundamental to an operating policy the Fund's
policy on unseasoned issuers;
CUSIP#779551100/fund#054
R. To change from a fundamental to an operating policy the Fund's
policy on investing in warrants;
3. To amend the Fund's Articles of Incorporation to delete the policy on
pricing securities;
4. To ratify or reject the selection of the firm of Price Waterhouse as
the independent accountants for the Fund for the fiscal year 1994; and
5. To transact such other business as may properly come before the meeting
and any adjournments thereof.
LENORA V. HORNUNG
Secretary
March 8, 1994
100 East Pratt Street
Baltimore, Maryland 21202
YOUR VOTE IS IMPORTANT
SHAREHOLDERS ARE URGED TO DESIGNATE THEIR CHOICES ON EACH OF THE MATTERS TO BE
ACTED UPON AND TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOUR
PROMPT RETURN OF THE PROXY WILL HELP ASSURE A QUORUM AT THE MEETING AND AVOID
THE ADDITIONAL FUND EXPENSE OF FURTHER SOLICITATION.
T. ROWE PRICE GROWTH & INCOME FUND, INC.
MEETING OF SHAREHOLDERS--APRIL 20, 1994
PROXY STATEMENT
This statement is furnished in connection with the solicitation of proxies
by the T. Rowe Price Growth & Income Fund, Inc. (the "Fund"), a Maryland
corporation, for use at the Annual Meeting of Shareholders of the Fund to be
held on April 20, 1994, and at any adjournments thereof.
Shareholders are entitled to one vote for each full share, and a
proportionate vote for each fractional share, of the Fund held as of the
record date. Under Maryland law, shares owned by two or more persons (whether
as joint tenants, co-fiduciaries, or otherwise) will be voted as follows,
unless a written instrument or court order providing to the contrary has been
filed with the Fund: (1) if only one votes, that vote will bind all; (2) if
more than one votes, the vote of the majority will bind all; and (3) if more
than one votes and the vote is evenly divided, the vote will be cast
proportionately.
In order to hold the meeting, a majority of the Fund's shares entitled to
be voted must have been received by proxy or be present at the meeting. In the
event that a quorum is present but sufficient votes in favor of one or more of
the Proposals are not received by the time scheduled for the meeting, the
persons named as proxies may propose one or more adjournments of the meeting
to permit further solicitation of proxies. Any such adjournment will require
the affirmative vote of a majority of the shares present in person or by proxy
at the session of the meeting adjourned. The persons named as proxies will
vote in favor of such adjournment if they determine that such adjournment and
additional solicitation is reasonable and in the interests of the Fund's
shareholders.
The individuals named as proxies (or their substitutes) in the enclosed
proxy card (or cards if you have multiple accounts) will vote in accordance
with your directions as indicated thereon if your proxy is received properly
executed. You may direct the proxy holders to vote your shares on a Proposal
by checking the appropriate box "For" or "Against," or instruct them not to
vote those shares on the Proposal by checking the "Abstain" box.
Alternatively, you may simply sign, date and return your proxy card(s) with no
specific instructions as to the Proposals. If you properly execute your proxy
card and give no voting instructions with respect to a Proposal, your shares
will be voted for the Proposal. Any proxy may be revoked at any time prior to
its exercise by filing with the Fund a written notice of revocation, by
delivering a duly executed proxy bearing a later date, or by attending the
meeting and voting in person.
Abstentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorum is present, but do not represent
votes cast with respect to any Proposal. "Broker non-votes" are shares held by
a broker or nominee for which an executed proxy is received by the Fund, but
are not voted as to one or more Proposals because instructions have not been
received from the beneficial owners or persons entitled to vote and the broker
or nominee does not have discretionary voting power.
VOTE REQUIRED: A PLURALITY OF ALL VOTES CAST AT THE MEETING IS SUFFICIENT
TO APPROVE PROPOSAL 1. APPROVAL OF PROPOSAL 3 REQUIRES THE AFFIRMATIVE VOTE OF
THE HOLDERS OF A MAJORITY OF THE FUND'S OUTSTANDING SHARES. APPROVAL OF ALL
REMAINING PROPOSALS OF THE FUND REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS
OF THE LESSER OF (A) 67% OF THE SHARES PRESENT AT THE MEETING IN PERSON OR BY
PROXY, OR (B) A MAJORITY OF THE FUND'S OUTSTANDING SHARES. A MAJORITY OF THE
SHARES PRESENT IN PERSON OR BY PROXY AT THE MEETING IS SUFFICIENT TO APPROVE
PROPOSAL 4.
If the proposed amendments to the Fund's Articles of Incorporation and
fundamental investment policies are approved, they will become effective on or
about May 1, 1994. If a proposed amendment to the Fund's Articles of
Incorporation or fundamental investment policies is not approved, it will
remain unchanged.
The costs of the meeting, including the solicitation of proxies, will be
paid by the Fund. Persons holding shares as nominees will be reimbursed, upon
request, for their reasonable expenses in sending solicitation materials to
the principals of the accounts. In addition to the solicitation of proxies by
mail, directors, officers, and/or employees of the Fund or of its investment
manager, T. Rowe Price Associates, Inc. ("T. Rowe Price"), may solicit proxies
in person or by telephone.
The approximate date on which this Proxy Statement and form of proxy is
first being mailed to shareholders is March 8, 1994.
1. ELECTION OF DIRECTORS
The Fund's Board of Directors has nominated the eleven (11) persons listed
below for election as directors, each to hold office until the next annual
meeting (if any) or his/her successor is duly elected and qualified. With the
exception of Ms. Merriman and Messrs. Bailey, Fagin, Lanier, Vos and Testa,
each of the nominees is a member of the present Board of Directors of the Fund
and has served in that capacity since originally elected. A shareholder using
the enclosed proxy form can vote for all or any of the nominees of the Board
of Directors or withhold his or her vote from all or any of such nominees. IF
THE PROXY CARD IS PROPERLY EXECUTED BUT UNMARKED, IT WILL BE VOTED FOR ALL OF
THE NOMINEES. Each of the nominees has agreed to serve as a director if
elected; however, should any nominee become unable or unwilling to accept
nomination or election, the persons named in the proxy will exercise their
voting power in favor of such other person or persons as the Board of
Directors of the Fund may recommend. There are no family relationships among
these nominees.
Fund Shares All Other
Beneficially Price Funds'
Owned, Shares
Name, Address, Year of Directly or Beneficially
and Date Original Indirectly, Owned
of Birth Principal Election as as of Directly as
of Nominee Occupations/(1)/ Director 1/31/94/(2)/ of 1/31/94
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Leo C. Bailey Retired; Director of -- -- 177,668
3396 S. the following T. Rowe
Placita Fabula Price Funds: Growth
Green Valley, Stock, New Era, Science
AZ 85614 & Technology, Index
3/3/24 Trust (since
inception), Balanced
(since inception),
Mid-Cap Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), Blue Chip
Growth (since
inception),
International, and
Institutional
International (since
inception)
*Stephen W. President and member of 1988 5,441 28,810
Boesel the Executive Committee
100 East Pratt of the Fund; Managing
Street Director, T. Rowe Price
Baltimore, MD Associates, Inc.
21202
12/28/44
Donald W. Principal, Overseas 1982 371 171,728
Dick, Jr. Partners, Inc., a
375 Park financial investment
Avenue firm; formerly
New York, NY (6/65-3/89) Director
10152 and Vice
1/27/43 President-Consumer
Products Division,
McCormick & Company,
Inc., international
food processors;
Director/Trustee,
Waverly Press, Inc. and
the following T. Rowe
Price Funds/ Trusts:
Growth Stock, New
America Growth, Capital
Appreciation, Balanced
(since inception),
Mid-Cap Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), Blue Chip
Growth (since
inception),
International, and
Institutional
International (since
inception)
David K. Fagin Chairman, Chief -- -- 19,862
One Norwest Executive Officer and
Center Director, Golden Star
1700 Lincoln Resources, Ltd.;
Street formerly (1986-7/91)
Suite 1950 President, Chief
Denver, CO Operating Officer and
80203 Director, Homestake
4/9/38 Mining Company;
Director/ Trustee of
the following T. Rowe
Price Funds/Trusts: New
Horizons, New Era,
Equity Income, Capital
Appreciation, Balanced
(since inception),
Mid-Cap Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), and Blue
Chip Growth (since
inception)
Addison Lanier Financial management; -- -- 26,523
441 Vine President and Director,
Street, #2310 Thomas Emery's Sons,
Cincinnati, OH Inc. and Emery Group,
45202-2913 Inc.; Director/Trustee,
1/12/24 Scinet Development and
Holdings, Inc. and the
following T. Rowe Price
Funds/Trusts: New
America Growth, Equity
Income, Small-Cap
Value, Balanced (since
inception), Mid-Cap
Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), Blue Chip
Growth (since
inception),
International, and
Institutional
International (since
inception)
John K. Major Chairman of the Board
126 E. 26 and President, KCMA
Place Incorporated, Tulsa,
Tulsa, OK Oklahoma; Director/
74114-2422 Trustee of the
8/3/24 following T. Rowe Price
Funds/Trusts: Growth
Stock, New Horizons,
New Era, Capital
Appreciation, Science &
Technology, Balanced
(since inception),
Mid-Cap Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), and Blue
Chip Growth (since
inception)
Hanne M. Retail business -- -- 2,029
Merriman consultant; formerly,
655 15th President and Chief
Street Operating Officer
Suite 300 (1991-92), Nan Duskin,
Washington, Inc., a women's
D.C. 20005 specialty store,
11/16/41 Director (1984-90) and
Chairman (1989-90)
Federal Reserve Bank of
Richmond, and President
and Chief Executive
Officer (1988-89),
Honeybee, Inc., a
division of Spiegel,
Inc.; Director,
AnnTaylor Stores
Corporation, Central
Illinois Public Service
Company, CIPSCO
Incorporated, The Rouse
Company, State Farm
Mutual Automobile
Insurance Company and
USAir Group, Inc.;
Member, National
Women's Forum; Trustee,
American-Scandinavian
Foundation
*James S. Chairman of the Board 1982 13,389 568,155
Riepe and member of the
100 East Pratt Executive Committee of
Street the Fund; Managing
Baltimore, MD Director, T. Rowe Price
21202 Associates, Inc.;
6/25/43 President and Director,
T. Rowe Price
Investment Services,
Inc.; Chairman of the
Board, T. Rowe Price
Services, Inc., T. Rowe
Price Trust Company, T.
Rowe Price Retirement
Plan Services, Inc.,
and the following T.
Rowe Price Funds:
Spectrum (since
inception), Balanced
(since inception), and
Mid-Cap Growth (since
inception); Vice
President of the
following T. Rowe Price
Funds/Trusts: New Era,
New America Growth,
Prime Reserve,
International, and
Institutional
International (since
inception); Vice
President and Director/
Trustee of the 24 other
T. Rowe Price
Funds/Trusts; Director,
T. Rowe Price Tax-Free
Insured Intermediate
Bond Fund, Inc. (since
inception) and
Rhone-Poulenc Rorer,
Inc.
*M. David Managing Director, T. -- -- 461,137
Testa Rowe Price Associates,
100 East Pratt Inc.; Chairman of the
Street Board, Rowe
Baltimore, MD Price-Fleming
21202 International, Inc. and
4/22/44 the following T. Rowe
Price Funds: Growth
Stock, International,
and Institutional
International (since
inception); Vice
President and Director,
T. Rowe Price Trust
Company and T. Rowe
Price Balanced Fund,
Inc. (since inception);
Director of the
following T. Rowe Price
Funds: Dividend Growth
(since inception) and
Blue Chip Growth (since
inception); Vice
President, T. Rowe
Price Spectrum Fund,
Inc. (since inception)
Hubert D. Vos President, Stonington -- -- 10,804
1231 State Capital Corporation, a
Street private investment
Suite 210 company; Director/
Santa Barbara, Trustee of the
CA following T. Rowe Price
93190-0409 Funds/Trusts: New
8/2/33 Horizons, New Era,
Equity Income, Capital
Appreciation, Science &
Technology, Small-Cap
Value, Balanced (since
inception), Mid-Cap
Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), and Blue
Chip Growth (since
inception)
Paul M. Wythes Founding General 1982 477 48,831
755 Page Mill Partner, Sutter Hill
Road Ventures, a venture
Suite A200 capital limited
Palo Alto, CA partnership providing
94304 equity capital to young
6/23/33 high technology
companies throughout
the United States;
Director/ Trustee,
Teltone Corporation,
Interventional
Technologies, Inc.,
Stuart Medical, Inc.
and the following T.
Rowe Price Funds/
Trusts: New Horizons,
New America Growth,
Science & Technology,
Small-Cap Value, Index
Trust (since
inception), Balanced
(since inception),
Mid-Cap Growth (since
inception), OTC (since
inception), Dividend
Growth (since
inception), and Blue
Chip Growth (since
inception)
* Nominees considered "interested persons" of T. Rowe Price.
(1) Except as otherwise noted, each individual has held the office indicated,
or other offices in the same company, for the last five years.
(2) In addition to the shares owned beneficially and of record by each of the
nominees, the amounts shown reflect the proportionate interests of Messrs.
Boesel, Riepe, and Testa in 2,512 shares of the Fund which are owned by a
wholly-owned subsidiary of the Fund's investment manager, T. Rowe Price,
and their interests in 2,211 shares owned by the T. Rowe Price Associates,
Inc. Profit Sharing Trust.
The directors of the Fund who are officers or employees of T. Rowe Price
receive no remuneration from the Fund. For the year 1993, Messrs. Dick, Major
and Wythes were each paid a director's fee by the Fund in accordance with the
following fee schedule: a fee of $25,000 per year as the initial fee for the
first Price Fund/Trust on which a director serves; a fee of $5,000 for each of
the second, third, and fourth Price Funds/Trusts on which a director serves; a
fee of $2,500 for each of the fifth and sixth Price Funds/Trusts on which a
director serves; and a fee of $1,000 for each of the seventh and any
additional Price Funds/Trusts on which a director serves. For the year ended
December 31, 1993, this group of directors received from the Fund directors'
fees aggregating $25,564, including expenses. Those nominees indicated by an
asterisk (*) are persons who, for purposes of Section 2(a)(19) of the
Investment Company Act of 1940 are considered "interested persons" of T. Rowe
Price. Each such nominee is deemed to be an "interested person" by virtue of
his officership, directorship and/or employment with T. Rowe Price. Messrs.
Dick, Major and Wythes are the current independent directors of the Fund.
The Price Funds have established a Joint Audit Committee, which is
comprised of at least one independent director representing each of the Funds.
Mr. Dick, a director of the Fund, is a member of the Committee. The other
members are Leo C. Bailey, Anthony W. Deering and Hubert D. Vos. These
directors also receive a fee of $500 for each Committee meeting attended. The
Audit Committee holds two regular meetings during each fiscal year, at which
time it meets with the independent accountants of the Price Funds to review:
(1) the services provided; (2) the findings of the most recent audit; (3)
management's response to the findings of the most recent audit; (4) the scope
of the audit to be performed; (5) the accountants' fees; and (6) any
accounting questions relating to particular areas of the Price Funds'
operations or the operations of parties dealing with the Price Funds, as
circumstances indicate.
The Board of Directors of the Fund has an Executive Committee which is
authorized to assume all the powers of the Board to manage the Fund, in the
intervals between meetings of the Board, except the powers prohibited by
statute from being delegated.
The Board of Directors of the Fund has a Nominating Committee, which is
comprised of all the Price Fund's independent directors. The Nominating
Committee, which functions only in an advisory capacity, is responsible for
reviewing and recommending to the full Board candidates for election as
independent directors to fill vacancies on the Fund's Board of Directors. The
Nominating Committee will consider written recommendations from shareholders
for possible nominees. Shareholders should submit their recommendations to the
Secretary of the Fund. Members of the Nominating Committee met informally
during the last full fiscal year, but the Committee as such held no formal
meetings.
The Board of Directors held seven meetings during the last full fiscal
year. With the exception of Mr. Major, each director standing for reelection
attended 75% or more of the aggregate of (i) the total number of meetings of
the Board of Directors (held during the period for which he was a director)
and (ii) the total number of meetings held by all committees of the Board on
which he served.
2. APPROVAL OR DISAPPROVAL OF CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT
POLICIES
The Investment Company Act of 1940 (the "1940 Act") requires investment
companies such as the Fund to adopt certain specific investment policies that
can be changed only by shareholder vote. An investment company may also elect
to designate other policies that may be changed only by shareholder vote. Both
types of policies are often referred to as "fundamental policies." Certain of
the Fund's fundamental policies have been adopted in the past to reflect
regulatory, business or industry conditions that are no longer in effect.
Accordingly, the Fund's Board of Directors has approved, and has authorized
the submission to each Fund's shareholders for their approval, the amendment
and/or reclassification of certain of the fundamental policies applicable to
the Fund.
The proposed amendments would (i) conform the fundamental policies of the
Fund to ones which are expected to become standard for all T. Rowe Price
Funds, (ii) simplify and modernize the limitations that are required to be
fundamental by the 1940 Act and (iii) eliminate as fundamental any limitations
that are not required to be fundamental by that Act. The Board believes that
standardized policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. By reducing to a minimum those limitations that can be
changed only by shareholder vote, the Fund would be able to minimize the costs
and delay associated with holding frequent annual shareholders' meetings.
Finally, the Directors also believe that T. Rowe Price's ability to manage the
Fund's assets in a changing investment environment will be enhanced and that
investment management opportunities will be increased by these changes.
A. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY TO INCREASE ITS
ABILITY TO ENGAGE IN BORROWING TRANSACTIONS
Because the Fund may occasionally need to borrow money to meet substantial
shareholder redemption or exchange requests when available cash is not
sufficient to satisfy these needs, the Board of Directors has proposed an
amendment to the Fund's fundamental policy which would permit the Fund greater
flexibility to engage in borrowing transactions. The current restriction is
not required by applicable law. The new restriction would (1) allow the Fund
to borrow larger amounts of money; (2) borrow from other Price Funds or
persons to the extent permitted by applicable law; and (3) clarify that the
Fund's restriction on borrowing does not prohibit the Fund from entering into
reverse repurchase agreements and other proper investments and transactions.
The new restriction would also conform the Fund's policy on borrowing to one
which is expected to become standard for all T. Rowe Price Funds. The Board
believes that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such proposals be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of borrowing is as
follows:
"[As a matter of fundamental policy, the Fund may not:] Borrow money,
except the Fund may borrow from banks as a temporary measure for
extraordinary or emergency purposes, and then only from banks in amounts
not exceeding 15% of its total assets valued at market. The Fund will not
borrow in order to increase income (leveraging), but only to facilitate
redemption requests which might otherwise require untimely disposition of
portfolio securities. Interest paid on any such borrowings will reduce net
investment income. The Fund may also enter into futures contracts as set
forth in [its fundamental policy on futures];"
As amended, the Fund's fundamental policy on borrowing would be as
follows:
"[As a matter of fundamental policy, the Fund may not:] Borrow money
except that the Fund may (i) borrow for non-leveraging, temporary or
emergency purposes and (ii) engage in reverse repurchase agreements and
make other investments or engage in other transactions, which may involve
a borrowing, in a manner consistent with the Fund's investment objective
and program, provided that the combination of (i) and (ii) shall not
exceed 33 1/3% of the value of the Fund's total assets (including the
amount borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law. Any borrowings which come to exceed this
amount will be reduced in accordance with applicable law. The Fund may
borrow from banks, other Price Funds or other persons to the extent
permitted by applicable law;"
If approved, the primary effect of the proposals would be to allow the
Fund to: (1) borrow up to 33 1/3% (or such higher amount permitted by law) of
its total assets (including the amount borrowed) less liabilities (other than
borrowings) as opposed to the current limitation of 15%; (2) borrow from
persons in addition to banks and other mutual funds advised by T. Rowe Price
or Rowe Price-Fleming International, Inc. ("Price Funds"); and (3) enter into
reverse repurchase agreements and other investments consistent with the Fund's
investment objective and program.
33 1/3% LIMITATION
The increase in the amount of money which the Fund could borrow is
primarily designed to allow the Fund greater flexibility to meet shareholder
redemption requests should the need arise. As is the case under its current
policy, the Fund would not borrow to increase income through leveraging. It is
possible the Fund's ability to borrow a larger percentage of its assets could
adversely affect the Fund if the Fund were unable to liquidate sufficient
securities, or the Fund were forced to liquidate securities at unfavorable
prices, to pay back the borrowed sums. However, the Directors believe the
risks of such possibilities are outweighed by the greater flexibility the Fund
would have in borrowing. The increased ability to borrow should permit the
Fund, if it were faced with substantial shareholder redemptions, to avoid
liquidating securities at unfavorable prices or times to a greater degree than
would be the case under the current policy.
BORROWING FROM OTHER PRICE FUNDS
Current law prohibits the Fund from borrowing from other Price Funds.
However, if the proposed amendments to the Fund's fundamental investment
policy on borrowing are approved by shareholders, the Fund may apply to the
Securities and Exchange Commission ("SEC") for an exemption from this
prohibition. There is, of course, no assurance that the SEC would act
favorably on such a request. If the SEC did grant such an order, the Fund
could be allowed to borrow from other Price Funds. T. Rowe Price believes that
the ability to engage in borrowing transactions with the participating Price
Funds as part of a program, referred to as the "interfund lending program,"
may allow the Fund to obtain lower interest rates on money borrowed for
temporary or emergency purposes. Any existing Price Fund participating in the
interfund lending program would only do so upon approval of its shareholders.
As noted above, when the Fund is required to borrow money, it currently
may do so only from banks. When the Fund borrows money from banks, it
typically pays interest on those borrowings at a rate that is higher than
rates available contemporaneously from investments in repurchase agreements.
If the proposed amendment is approved (and an SEC exemptive order were
granted), eligible Price Funds would be permitted to participate in an
interfund lending program to allow various of the Price Funds, through a
master loan agreement, to lend available cash to and borrow from other Price
Funds. Each lending fund could lend available cash to another Price Fund only
when the interfund rate was higher than repurchase agreement rates or rates on
other comparable short-term investments. Each borrowing fund could borrow
through the interfund lending program only when the interfund loan rate was
lower than available bank loan rates.
In determining to recommend the proposed amendment to shareholders for
approval, T. Rowe Price and the Directors considered the possible risks to the
Fund from participation in the interfund lending program. T. Rowe Price does
not view the difference in rates available on bank borrowings and repurchase
agreements or other short-term investments as reflecting a material difference
in the quality of the risk of the transactions, but rather as an indication of
the ability of banks to earn a higher rate of interest on loans than they pay
on repurchase agreements or other short-term investments. There is a risk that
a lending fund could experience a delay in obtaining prompt repayment of a
loan and, unlike repurchase agreements, the lending fund would not necessarily
have received collateral for its loan, although it could require that
collateral be provided as a condition for making a loan. A delay in obtaining
prompt payment could cause a lending fund to miss an investment opportunity or
to incur costs to borrow money to replace the delayed payment. There is also a
risk that a borrowing fund could have a loan recalled on one day's notice. In
these circumstances, the borrowing fund might have to borrow from a bank at a
higher interest cost if money to lend were not available from another Price
Fund. The Directors consider that the benefits to the Fund of participating in
the program outweigh the possible risks to the Fund from such participation.
In order to permit the Fund to engage in interfund lending transactions,
regulatory approval of the SEC is required because, among other reasons, the
transactions may be considered to be among affiliated parties. If the proposed
amendment is approved by shareholders, the proposed interfund lending program
would be implemented only to the extent permitted by rule or by order of the
SEC and to the extent that the transactions were otherwise consistent with the
investment objectives and limitations of each participating Price Fund. If
exemptive relief from the SEC is not granted, the Fund, as previously noted,
will not be able to engage in the interfund lending program even though
shareholders have approved the proposal. As noted, no prediction can be made
as to whether the SEC would grant such relief.
Shareholders are being asked to approve an amendment to the Fund's
fundamental policy on borrowing in this proposal. Shareholders are also being
asked to vote separately on an amendment to the Fund's fundamental policy on
lending (see pages 15--17). If both amendments are adopted, the Fund, subject
to its investment objective and policies, will be able to participate in the
interfund lending program as both a lender and a borrower. If only one of the
two proposals is adopted, then the Fund's participation in the interfund
lending program will be confined to either lending or borrowing, depending on
which amendment is approved.
The Directors believe the proposed amendment may benefit the Fund by
facilitating its flexibility to explore cost-effective alternatives to satisfy
its borrowing requirements and by borrowing money from other Price Funds.
Implementation of interfund borrowing would be accomplished consistent with
applicable regulatory requirements, including the provisions of any order the
SEC might issue to the Fund and to other Price Funds.
REVERSE REPURCHASE AGREEMENTS
To facilitate portfolio liquidity, it is possible the Fund could enter
into reverse repurchase agreements. In a repurchase agreement the Fund would
purchase securities from a bank or broker-dealer (Counterparty) with the
agreement that the Counterparty would repurchase the securities at a later
date. Reverse repurchase agreements are ordinary repurchase agreements in
which a fund is a seller of, rather than the purchaser of, securities and
agrees to repurchase them at an agreed upon time and price. Reverse repurchase
agreements can avoid certain market risks and transaction costs associated
with an outright sale and repurchase. Reverse repurchase agreements, however,
may be viewed as borrowings. To the extent they are, the proposed amendment
would clarify that the Fund's restrictions on borrowing would not prohibit the
Fund from entering into a reverse repurchase agreement.
OTHER CHANGES
The other proposed changes in the Fund's fundamental policy--to allow the
Fund to borrow from persons other than banks and other Price Funds to the
extent consistent with applicable law--and to engage in transactions other
than reverse repurchase agreements which may involve a borrowing--are simply
designed to permit the Fund the greatest degree of flexibility permitted by
law in pursuing its investment program. As noted above, the Fund will not use
its increased flexibility to borrow to engage in transactions which could
result in leveraging the Fund. All activities of the Fund are, of course,
subject to the 1940 Act and the rules and regulations thereunder as well as
various state securities laws.
The Board of Directors recommends that shareholders vote FOR the proposal.
B. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL POLICIES ON INVESTING IN
COMMODITIES AND FUTURES CONTRACTS TO PROVIDE GREATER FLEXIBILITY IN
FUTURES TRADING
The Board of Directors has proposed amendments to the Fundamental
Investment Policies of the Fund to provide the Fund with greater flexibility
in buying and selling futures contracts. The provisions of the Fund's current
fundamental investment policies in this area are not required by applicable
law and the Directors believe the Fund's investment manager,
T. Rowe Price, should have greater flexibility to enter into futures
contracts consistent with the Fund's investment objective and program and as
market and regulatory developments require and permit without the necessity of
seeking further shareholder approval. The new restriction would also conform
the Fund's policy on commodities and futures to one which is expected to
become standard for all T. Rowe Price Funds. The Board believes that
standardized policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. The Board has directed that such amendments be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policies in the area of investing in
commodities and futures are as follows:
COMMODITIES
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
commodities or commodity contracts; except that it may enter into futures
contracts, subject to [its fundamental policy on futures];"
FUTURES CONTRACTS
"[As a matter of fundamental policy, the Fund may not:] Enter into a
futures contract or options thereon if, as a result thereof, (i) the then
current aggregate futures market prices of securities required to be
delivered under option futures contract sales plus the then current
aggregate purchase prices of securities required to be purchased under
open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market value at the time
of entering into the contract) would be committed to margin on such
futures contracts or premiums on options; provided, however, that in the
case of an option which is in-the-money at the time of purchase, the
in-the-money amount as defined under certain CFTC regulations may be
excluded in computing such 5%;"
As amended, the Fund's fundamental policy on investing in commodities and
futures would be combined and would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
physical commodities; except that it may enter into futures contracts and
options thereon;"
In addition, the Board of Directors intends to adopt the following
operating policy, which may be changed by the Board of Directors without
further shareholder approval.
"[As a matter of operating policy, the Fund will not:] Purchase a futures
contract or an option thereon if, with respect to positions in futures or
options on futures which do not represent bona fide hedging, the aggregate
initial margin and premiums on such options would exceed 5% of the Fund's
net asset value (the "New Operating Policy")."
If approved, the primary effects of the amendments would be to: (i)
eliminate the restriction that the Fund may not enter into a futures contract
if, as a result, more than 30% of the Fund's total assets would be represented
by such contracts (the "30% Limitation"); and (ii) replace the restriction
that the Fund may not commit more than 5% of its total assets to initial
margin on futures contracts or premiums on options (the "5% Limitation") with
the New Operating Policy. Although not specifically described in the amended
restriction, the Fund would have the ability to invest in forward foreign
currency contracts and instruments which have the characteristics of futures
and securities or whose value is determined, in whole or in part, by reference
to commodity prices. Although it has no current intention of doing so, the new
policy would also permit the Fund to enter into any type of futures contract,
not just those described in its current prospectus. The risks of such futures
could differ from the risks of the Fund's currently permitted futures
activity.
THE 30% LIMITATION
In response to a prior position of the SEC, the Fund has limited trading
in futures to having no more than 30% of its assets represented by futures
contracts. The SEC no longer takes this position. Although the Fund has no
current intention of engaging in substantial trading in futures, this
situation could change, and the Directors believe the best interest of the
Fund would be served by removing this requirement from the Fund's fundamental
policy on futures. Removal of the 30% Limitation could allow the Fund, subject
to applicable margin requirements, to hedge 100% of the value of its portfolio
and to enter into futures contracts and options thereon to a greater degree
than is currently permitted. All trading in futures by the Fund would be
subject to applicable SEC and Commodity Futures Trading Commission ("CFTC")
rules and applicable state law.
THE 5% LIMITATION
The 5% Limitation was previously required by rules of the CFTC in order
for the Fund to be excluded from status as a commodity pool operator under
applicable CFTC regulations, even if the Fund used futures for hedging
purposes only. The CFTC no longer applies the 5% test to bona fide hedging
activities, which is generally the type of futures activity in which the Fund
engages. Although applicable state law may still require compliance with
similar limitations, the Board of Directors believes the best interest of the
Fund would be served by replacing the 5% Limitation with the New Operating
Policy. This would provide the Fund with the flexibility to adapt to changes
in CFTC regulations and any state laws without seeking further shareholder
approval.
The Board of Directors recommends that shareholders vote FOR the proposal.
C. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING THE
MAKING OF LOANS
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund in order to: (i) specify the amount of its
assets which may be subject to its lending policy; (ii) authorize the Fund to
participate as a lender in an interfund lending program involving the funds
advised by T. Rowe Price or Rowe Price-Fleming International, Inc. (the "T.
Rowe Price Funds"); and (iii) allow the Fund to purchase the entire or any
portion of the debt of a company. The new restriction would also conform the
Fund's policy on lending to one which is expected to become standard for all
T. Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such amendment be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of making loans is as
follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although it may acquire portions of issues of publicly distributed bonds,
debentures, notes, and other debt securities; engage in repurchase
agreements; lend portfolio securities; and purchase debt securities at
private placement within the limits imposed above on the acquisition of
restricted securities;"
As amended, the Fund's fundamental policy on loans would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Make loans,
although the Fund may (i) lend portfolio securities and participate in an
interfund lending program with other Price Funds provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed
33 1/3% of the value of the Fund's total assets; (ii) purchase money
market securities and enter into repurchase agreements; and (iii) acquire
publicly-distributed or privately-placed debt securities and purchase
debt;"
33 1/3% RESTRICTION
The Fund's current fundamental policy on loans does not impose any
specific limit on the amount of the Fund's assets which may be involved in
such activity. The new policy would restrict such lending to 33 1/3% of the
Fund's total assets.
INTERFUND LENDING PROGRAM
The proposed amendments to the Fund's fundamental policy would allow the
Fund to participate in an interfund lending program with other T. Rowe Price
Funds. The nature of this program and the risks associated with the Fund's
participation are set forth under "Borrowing from Other Price Funds" beginning
on page 11. Shareholders are being asked to consider, and vote separately, on
the Fund's participation in the interfund lending program as a borrower and as
a lender.
The Directors believe that the interfund lending program: (i) may benefit
the Fund by providing it with greater flexibility to engage in lending
transactions; and (ii) would facilitate the Fund's ability to earn a higher
return on short-term investments by allowing it to lend cash to other T. Rowe
Price Funds. Implementation of interfund lending would be accomplished
consistent with applicable regulatory requirements, including the provisions
of any order the SEC might issue to the Fund and to other T. Rowe Price Funds.
The Fund has not yet applied for such an order and there is no guarantee any
such order would be granted, even if applied for.
PURCHASE OF DEBT
The Fund's fundamental policy on lending allows the Fund to purchase debt
securities as an exception to the general limitations on making loans.
However, there is no similar exception for the purchase of straight debt,
e.g., a corporate loan held by a bank for example which might not be
considered a debt security. The amended policy would allow the purchase of
this kind of debt. Because the purchase of straight debt could be viewed as a
loan by the Fund to the issuer of the debt, the Board of Directors has
determined to clarify this matter by including the purchase of debt as an
exception to the Fund's general prohibition against making loans. The purchase
of debt might be subject to greater risks of illiquidity and unavailability of
public information than would be the case for an investment in a publicly held
security. The primary purpose of this proposal is to conform the Fund's
fundamental policy in this area to one that is expected to become standard for
all T. Rowe Price Funds. The Fund will continue to invest primarily in equity
securities. However, the Board of Directors believes that increased
standardization will help promote operational efficiencies and facilitate
monitoring of compliance with the Fund's investment restrictions.
OTHER CHANGES
The proposed new policy on lending would specifically refer to the Fund's
ability to purchase money market securities. These are investments which the
Fund is permitted to make already and these changes to the Fund's fundamental
policy are intended to be clarifying only. Finally, for purposes of this
restriction, the Fund will consider the acquisition of a debt security to
include the execution of a note or other evidence of an extension of credit
with a term of more than nine months. Because such transactions by the Fund
could be viewed as a loan by the Fund to the maker of the note, the Board of
Directors has determined to clarify this matter by including these
transactions as an exception to the Fund's general prohibition against making
loans.
The Board of Directors recommends that shareholders vote FOR the proposal.
D. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL POLICY TO INCREASE THE PERCENTAGE
OF FUND ASSETS WHICH MAY BE INVESTED IN ANY ONE ISSUER
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform such policies to Section 5(b)(1) of
the 1940 Act and to permit the Fund greater flexibility to invest in
securities considered by T. Rowe Price to present attractive investment
opportunities. Under the amended policy, the Fund would be limited, with
respect to 75% of its total assets, to investing no more than 5% of its total
assets in the securities of any one issuer. However, no such limitation would
apply with respect to the remaining 25% of the Fund's assets. It should be
understood that the proposed amendment, by permitting the Fund to invest a
greater percentage of its assets with a single issuer, could increase the risk
to the Fund in the event of adverse developments affecting the securities of
such issuer. In addition, as under the current policy, the new restrictions
would apply to repurchase agreements. The Board has directed that such
amendment be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of a single issuer is as follows:
"[As a matter of fundamental policy, the Fund may not: Purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities) if, as a result:]
. . . More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer;"
As amended, the Fund's fundamental policy on investing in the securities
of a single issuer would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of its total
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. government, or any of its agencies or
instrumentalities;"
The proposed amendments will not affect the status of the Fund as a
diversified investment company under the 1940 Act. However, the proposed
amendments would allow the Fund to invest a significantly larger portion of
its assets in the securities of a single issuer. Thus, for example, the Fund
could invest 25% of its total assets in the securities of a single issuer, or
10% of its total assets in securities of one issuer and 15% of its total
assets in securities of another issuer. This would cause the Fund's net asset
value per share to be more affected by changes in the value of, and market,
credit and business developments with respect to, the securities of such
issuer(s). In addition, if the Fund were to have a substantial portion of its
assets invested in the securities of a single issuer, the liquidity of the
Fund's investment in that issuer could be reduced. However, the Fund's Board
of Directors believes the Fund should have the increased flexibility to pursue
its investment program which the proposed amendment would allow.
The Board of Directors recommends that shareholders vote FOR the proposal.
E. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL POLICY REGARDING PURCHASING MORE
THAN 10% OF AN ISSUER'S VOTING SECURITIES
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to conform such policies to Section 5(b)(1) of
the 1940 Act and to provide the Fund with greater flexibility to invest its
assets in the outstanding voting securities of various companies. Under the
amended policy, the Fund would be restricted from owning more than 10% of an
issuer's outstanding voting securities only with respect to 75% of the value
of its total assets, as opposed to 100% under the current policy. It should be
noted, however, that the Fund has no current intention of investing in any
portfolio company for the purpose of exercising management or control. By
permitting the Fund to own more than 10% of the outstanding voting securities
of an issuer, the proposed amendment, if adopted, could increase the risk to
the Fund with respect to adverse developments concerning such securities. The
Board of Directors, however, believes the Fund should have the increased
flexibility which the amendment would provide. The Board has directed that
such change be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing more than
10% of an issuer's voting securities is as follows:
"[As a matter of fundamental policy, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities) if, as a result:]
. . . more than 10% of the outstanding voting securities of any issuer
would be held by the Fund;"
As amended, the Fund's fundamental policy on purchasing more than 10% of
an issuer's voting securities would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, with respect to 75% of the value of the Fund's
total assets, more than 10% of the outstanding voting securities of any
issuer would be held by the Fund (other than obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities);"
The proposed amendments will not affect the status of the Fund as a
diversified investment company under the 1940 Act. However, the proposed
amendments would permit the Fund, with respect to 25% of its assets, to take a
larger position in the voting securities of companies than under the current
investment limitation. Thus, for example, the Fund could purchase 100% of the
voting securities of one or more companies. This would cause the Fund's net
asset value per share to be more affected by changes in the value of, and
market, credit and business developments with respect to, the securities of
such companies. In addition, if the Fund were to own a substantial percentage
of an issuer's voting or other securities, there is a risk that the liquidity
of those securities would be reduced. However, the Fund's Board of Directors
believes the Fund should have the increased flexibility to pursue its
investment program which the proposed amendment would allow.
The Board of Directors recommends that shareholders vote FOR the proposal.
F. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICIES CONCERNING
REAL ESTATE
The Board of Directors has proposed an amendment to the Fundamental
Investment Policies of the Fund to clarify the types of securities in which
the Fund is authorized to invest and to conform the Fund's fundamental policy
on investing in real estate to a policy that is expected to become standard
for all Price Funds. The proposed amendment is not expected to affect the
investment program of the Fund or instruments in which the Fund invests. The
Fund will not purchase or sell real estate. The Board has directed that such
amendments be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in real
estate is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
real estate (although it may purchase securities secured by real estate or
interests therein, or issued by companies which invest in real estate
therein);"
As amended, the Fund's fundamental policy on investing in real estate
would be as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or sell
real estate unless acquired as a result of ownership of securities or
other instruments (but this shall not prevent the Fund from investing in
securities or other instruments backed by real estate or in securities of
companies engaged in the real estate business);"
The Board of Directors recommends that shareholders vote FOR the proposal.
G. PROPOSAL TO ADOPT A NEW FUNDAMENTAL INVESTMENT POLICY ON THE ISSUANCE OF
SENIOR SECURITIES
The Fund's Board of Directors has proposed that a new Fundamental
Investment Policy on issuing senior securities be adopted by the Fund. The
Fund currently does not have a policy on issuing senior securities. The new
policy, if adopted, would permit the Fund to issue senior securities to the
extent permitted by the 1940 Act.
The new fundamental policy on issuing senior securities would be as
follows:
"[As a matter of fundamental policy, the Fund may not:] Issue senior
securities except in compliance with the Investment Company Act of 1940;"
The 1940 Act limits a Fund's ability to issue senior securities or engage
in investment techniques which could be deemed to create a senior security.
Although the definition of a "senior security" involves complex statutory and
regulatory concepts, a senior security is generally thought of as a class of
security preferred over shares of the Fund with respect to the Fund's assets
or earnings. It generally does not include temporary or emergency borrowings
by the Fund (which might occur to meet shareholder redemption requests) in
accordance with federal law and the Fund's investment limitations. Various
investment techniques that obligate the Fund to pay money at a future date
(e.g., the purchase of securities for settlement on a date that is longer than
required under normal settlement practices) occasionally raise questions as to
whether a "senior security" is created. The Fund utilizes such techniques only
in accordance with applicable regulatory requirements under the 1940 Act.
Although the Fund has no current intention of issuing senior securities, the
proposed change will clarify the Fund's authority to issue senior securities
in accordance with the 1940 Act without the need to seek shareholder approval.
The Board of Directors recommends that shareholders vote FOR the proposal.
H. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL POLICY ON
INVESTING FOR CONTROL OF PORTFOLIO COMPANIES
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing for control of portfolio companies be changed
from a fundamental policy to an identical operating policy. Fundamental
policies may only be changed with shareholder approval, while operating
policies may be changed by vote of the Board of Directors without shareholder
approval. While the Fund has no current intention of investing in companies
for the purpose of obtaining or exercising control, the proposed change would
allow the Fund to do so if the Board of Directors determined to change the new
operating policy. No additional shareholder vote would be necessary. The Board
believes that the proposed amendment will provide the Fund with greater
flexibility to respond to market and regulatory developments and has directed
that such change be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing for control
of portfolio companies is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest in
companies for the purpose of exercising management or control;"
As changed, the Fund's operating policy on investing for control of
portfolio companies would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in companies
for the purpose of exercising management or control;"
The Board of Directors recommends that shareholders vote FOR the proposal.
I. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL POLICY ON INVESTING IN THE
SECURITIES OF OTHER INVESTMENT COMPANIES
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on investing in the securities of other investment companies be
eliminated and replaced with a substantially similar operating policy.
Fundamental policies may be changed only by shareholder vote, while operating
policies may be changed by vote of the Board of Directors without shareholder
approval. The current policy of the Fund is not required by applicable law to
be fundamental. The purpose of the proposed change is to provide the Fund
greater flexibility in pursuing its investment objective and in responding to
regulatory and market developments. Although the Fund does not typically
invest in the securities of other open-end investment companies and would
only, on occasion, purchase securities of closed-end investment companies, the
proposed change would permit the Fund to invest in the securities of other
investment companies to the maximum extent permitted under the 1940 Act and
applicable state law, as described below, without further shareholder
approval. The Board has directed that such change be submitted to shareholders
for approval or disapproval.
The Fund's current fundamental policy in the area of investing in the
securities of other investment companies is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities of other investment companies, except by purchase in the open
market involving only customary broker's commissions, or in connection
with a merger, consolidation, acquisition, or reorganization. Duplicate
fees may result from such purchases;"
The operating policy on investing in the securities of other investment
companies, to be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
of open-end or closed-end investment companies except in compliance with
the Investment Company Act of 1940 and applicable state law. Duplicate
fees may result from such purchases;"
Under the 1940 Act, the Fund is subject to various restrictions in
purchasing the securities of closed-end and open-end investment companies. The
1940 Act limits the Fund, immediately after a purchase, (1) to investing no
more than 10% of its total assets in the securities of other investment
companies; (2) to owning no more than 3% of the total outstanding voting stock
of any other investment company; and (3) to having no more than 5% of its
total assets invested in securities of another investment company.
Additionally, in the case of a closed-end investment company, the Fund, and
all other mutual funds having T. Rowe Price as an investment manager, are
limited to owning no more than 10% of the total outstanding voting stock of
any closed-end company.
The 1940 Act provides an alternative set of restrictions if the Fund were
to exceed certain of these percentage limitations. Under the alternative, the
Fund could invest any or all of its assets in other investment companies,
provided the Fund and all of its affiliates, immediately after a purchase, did
not own more than 3% of the total outstanding stock of the other investment
company. Under this alternative restriction, the rate at which the Fund could
redeem its investment in the other investment companies in which it invests
might be restricted which could result in a situation where the Fund would not
be able to redeem a portfolio security when it appears to T. Rowe Price to be
in the best interest of the Fund to do so. T. Rowe Price would consider the
effect on the Fund's liquidity and the Fund's ability to timely dispose of
securities, before purchasing the securities of another investment company.
Certain states impose further limitations on the purchase by the Fund of
the securities of other investment companies. At the present time, these
restrictions could prohibit the Fund, with certain exceptions, from: (i)
purchasing or retaining the securities of any open-end investment company;
(ii) purchasing the securities of any closed-end investment company except
through a purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary broker's
commission or when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition; and (iii) investing more than 10% of its assets
in one or more investment companies.
It is possible the requirements of the 1940 Act or the states regarding
the Fund's investment in the securities of closed-end and open-end investment
companies could change, or that the Fund could obtain a waiver of their
application. The Board of Directors believes the Fund should have the ability
to respond to potential changes in these areas without the necessity of
holding a further meeting of shareholders.
The Board of Directors recommends that shareholders vote FOR the proposal.
J. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
PURCHASING SECURITIES ON MARGIN
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing securities on margin be changed from a fundamental policy
to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by the Board of
Directors without shareholder approval. The purpose of the proposal is to
allow the Fund greater flexibility in responding to market and regulatory
developments by providing the Board of Directors with the authority to make
changes in the Fund's policy on margin without further shareholder approval.
The new restriction would also conform the Fund's policy on margin to one
which is expected to become standard for all T. Rowe Price Funds. The Board
believes that standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to which the T.
Rowe Price Funds are subject. The Board has directed that such amendment be
submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing securities
on margin is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities, and except for margin
deposits made in connection with futures contracts, subject to [its
fundamental policy on futures];"
As amended, the Fund's operating policy on purchasing securities on margin
would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase securities
on margin, except (i) for use of short-term credit necessary for clearance
of purchases of portfolio securities and (ii) it may make margin deposits
in connection with futures contracts or other permissible investments;"
Both the Fund's current policy and the proposed operating policy prohibit
the purchase of securities on margin but allow the Fund to make margin
deposits in connection with futures contracts and use such short-term credit
as is necessary for clearance of purchases of portfolio securities. The
proposed operating policy also would acknowledge that the Fund is permitted to
make margin deposits in connection with other investments in addition to
futures. Such investments might include, but are not limited to, written
options where the Fund could be required to put up margin with a broker as
security for the Fund's obligation to deliver the security on which the option
is written.
The Board of Directors recommends that shareholders vote FOR the proposal.
K. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON PLEDGING
ITS ASSETS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on pledging its assets be eliminated and replaced with an operating
policy. Fundamental policies may be changed by shareholder vote, while
operating policies may be changed by vote of the Board of Directors without
shareholder approval. Applicable law does not require the current percentage
limitation set forth in the policy and does not require such policy to be
fundamental. The new operating policy would allow the Fund to pledge, in
connection with Fund indebtedness 33 1/3% of its total assets (an increase
from the current restriction) and allow the Fund to pledge assets in
connection with permissible investments. The Board of Directors believes it is
advisable to provide the Fund with greater flexibility in pursuing its
investment objective and program and responding to regulatory and market
developments. The new restriction would also conform the Fund's policy on
pledging its assets to one which is expected to become standard for all T.
Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such proposals be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of pledging its assets
is as follows:
"[As a matter of fundamental policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any other manner, transfer as security for indebtedness
any security owned by the Fund, except (i) as may be necessary in
connection with permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's assets, valued
at cost, provided, however, that as a matter of operating policy, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its
net assets, valued at market, in order to comply with certain state
investment restrictions; and (ii) it may enter into futures contracts;"
The operating policy on pledging of assets, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Mortgage, pledge,
hypothecate or, in any manner, transfer any security owned by the Fund as
security for indebtedness except as may be necessary in connection with
permissible borrowings or investments and then such mortgaging, pledging
or hypothecating may not exceed 33 1/3% of the Fund's total assets at the
time of the borrowing or investment;"
The operating policy would allow the Fund to pledge 33 1/3% of its
total assets instead of the current 15% as set forth in the Fund's fundamental
policy (and 10% as set forth in the Fund's current operating policy). The new
policy, in addition to allowing pledging in connection with indebtedness would
clarify the Fund's ability to pledge its assets in connection with permissible
investments. Such pledging could arise, for example, when the Fund engages in
futures or options transactions or purchases securities on a when-issued or
forward basis. As an operating policy, the Board of Directors could modify the
proposed policy on pledging in the future as the need arose, without seeking
further shareholder approval.
Pledging assets to other parties is not without risk. Because assets that
have been pledged to other parties may not be readily available to the Fund,
the Fund may have less flexibility in liquidating such assets if needed.
Therefore, the new policy, by allowing the Fund to pledge a greater portion of
its assets, could, to a greater extent than the current policy, impair the
Fund's ability to meet current obligations, or impede portfolio management. On
the other hand, these potential risks should be considered together with the
potential benefits, such as increased flexibility to borrow and the increased
ability of the Fund to pursue its investment program.
The Board of Directors recommends that shareholders vote FOR the proposal.
L. TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING IN OIL
AND GAS PROGRAMS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in oil and gas programs be eliminated and
replaced with a substantially similar operating policy. Fundamental policies
may be changed only by shareholder vote, while operating policies may be
changed by the Board of Directors without shareholder approval. The current
policy of the Fund is not required by applicable law to be fundamental. The
Fund has no current intention of investing in oil or gas programs, but
adoption of the proposal would allow the Fund to make such investments in the
future without shareholder vote. The new restriction would also conform the
Fund's policy on investing in oil and gas programs to one which is expected to
become standard for all T. Rowe Price Funds. The Board believes that
standardized policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the T. Rowe Price
Funds are subject. The Board has directed that the proposal be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of investing in oil and
gas programs is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase
participations or other direct interests or enter into leases with respect
to oil, gas, other mineral exploration or development programs;"
The operating policy on investing in oil and gas programs, to be adopted
by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase
participations or other direct interests or enter into leases with respect
to, oil, gas or other mineral exploration or development programs;"
The current fundamental policy was formerly required by certain states to
be fundamental. This is no longer the case and the replacement of the policy
with an operating policy will adequately protect the Fund while providing
greater flexibility to the Fund to respond to market or regulatory
developments by allowing the Board of Directors the authority to make changes
in this policy without seeking further shareholder approval. Like the current
restriction, the new operating policy would allow the Fund to invest in
securities of companies which are engaged in the oil and gas business.
The Board of Directors recommends that shareholders vote FOR the proposal.
M. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON OPTIONS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in options be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by vote of
the Board of Directors without shareholder approval. Under the new operating
policy, the Fund would be permitted to purchase and sell options of any type
for any purpose consistent with the Fund's investment program. The purpose of
the proposal is to allow the Fund greater flexibility in responding to market
and regulatory developments by allowing the Board of Directors the authority
to make changes in the Fund's policy on options without seeking further
shareholder approval. The new restriction would also conform the Fund's policy
on investing in options to one which is expected to become standard for all T.
Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that such change be submitted to shareholders for approval
or disapproval.
The Fund's current fundamental policy in the area of investing in options
is as follows:
"[As a matter of fundamental policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except that the
Fund may invest in or commit its assets to writing covered call and put
options and purchasing put and call options to the extent permitted by the
prospectus and Statement of Additional of Information;"
The operating policy on investing in options, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in puts,
calls, straddles, spreads, or any combination thereof, except to the
extent permitted by the prospectus and Statement of Additional
Information;"
The Board of Directors recommends that shareholders vote FOR the proposal.
N. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Policy on the ownership of portfolio securities by officers and directors of
the Fund and T. Rowe Price be eliminated and replaced with a substantially
similar operating policy. Fundamental policies may be changed only by
shareholder vote, while operating policies may be changed by vote of the Board
of Directors without shareholder approval. The current policy of the Fund is
not required by applicable law to be fundamental. The current fundamental
policy was formerly required by certain states. This is no longer the case.
The Board has directed that the proposal be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of ownership of
portfolio securities by officers and directors is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase or retain
the securities of any issuer if, to the knowledge of the Fund's
management, those officers or directors of the Fund, and of its investment
manager, who each owns beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities;"
As changed, the Fund's operating policy in the area of ownership of
portfolio securities by officers and directors would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase or retain
the securities of any issuer if, to the knowledge of the Fund's
management, those officers and directors of the Fund, and of its
investment manager, who each own beneficially more than .5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities;"
The Board of Directors recommends that shareholders vote FOR the proposal.
O. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING THE PURCHASE OF ILLIQUID SECURITIES
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on purchasing unmarketable securities be changed from a fundamental
policy to an operating policy. Fundamental policies may be changed only by
shareholder vote, while operating polices may be changed by the Board of
Directors without shareholder approval. If the proposed change is approved by
shareholders, the Board of Directors of the Fund intends to adopt an operating
policy which would (1) allow the Fund to invest up to 15% of its net assets in
illiquid securities and (2) conform the Fund's operating policy in this area
to one which is expected to become standard for all T. Rowe Price Funds,
except the T. Rowe Price money market funds. The Fund's current fundamental
policy in this area is not required by applicable law and the proposed change
should provide the Fund with greater flexibility in responding to market and
regulatory developments. The Board has directed that such change be submitted
to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of purchasing illiquid
securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase a
security if, as a result, more than 10% of the value of the Fund's total
assets would be invested in: (a) securities with legal or contractual
restrictions on resale; (b) securities for which market quotations are not
readily available; and (c) repurchase agreements which do not provide for
payment within seven (7) days;"
As changed, the operating policy on investing in illiquid securities, to
be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase illiquid
securities and securities of unseasoned issuers if, as a result, more than
15% of its net assets would be invested in such securities, provided that
the Fund will not invest more than 5% of its total assets in restricted
securities and not more than 5% in securities of unseasoned issuers.
Securities eligible for resale under Rule 144A of the Securities Act of
1933 are not included in the 5% limitation but are subject to the 15%
limitation;"
ILLIQUID SECURITIES
As an open-end investment company, the Fund may not hold a significant
amount of illiquid securities because such securities may present problems of
accurate valuation and it is possible the Fund could have difficulty
satisfying redemptions within seven days as required under the 1940 Act. In
general, the SEC defines an illiquid security as one which can not be sold in
the ordinary course of business within seven days at approximately the value
at which the Fund has valued the security. Illiquid securities have included
those enumerated in the Fund's fundamental restriction on restricted
securities--securities with legal or contractual restrictions on resale
("restricted securities") and repurchase agreements of a duration of more than
seven days.
The securities markets, however, are evolving and new types of instruments
have developed. In light of these developments, the Fund's fundamental
investment restriction, by essentially assuming restricted securities and
securities for which market quotations are not readily available are
unmarketable, may be overbroad and unnecessarily restrictive. For example, the
markets for various types of securities--repurchase agreements, commercial
paper, and some corporate bonds and notes--are almost exclusively
institutional. These instruments are often either exempt from registration or
sold in transactions not requiring registration. Although these securities may
be legally classified as "restricted," institutional investors will often
justifiably rely either on the issuer's ability to honor a demand for
repayment in less than seven days or on an efficient institutional market in
which the unregistered security can be readily resold. The fact that the
securities may be restricted because of legal or contractual restrictions on
resale to the general public will, therefore, not be dispositive of the
liquidity of such investments.
In recognition of the increased size and liquidity of the institutional
markets for unregistered securities and the importance of institutional
investors in the capital formation process, the SEC has adopted rules,
including Rule 144A under the Securities Act of 1933, designed to further
facilitate efficient trading among institutional investors. These rules permit
a broader institutional trading market for securities subject to restriction
on resale to the general public. If institutional markets develop which trade
in these securities, the Fund could be constrained by its current investment
restrictions. Accordingly, T. Rowe Price recommends that the Fund eliminate
its fundamental limitations in this area so that restricted securities that
are nonetheless liquid may be purchased without regard to the Fund's limit on
investing in illiquid securities. Of course, the Fund would modify its
operating policy to comply with future regulatory and market developments.
If this proposal is approved by shareholders, the specific types of
securities that may be deemed to be illiquid will be determined from time to
time by T. Rowe Price under the supervision of the Directors, with reference
to legal, regulatory and market developments. By making the Fund's policy on
illiquid securities non-fundamental, the Fund will be able to respond more
quickly to such developments because no shareholder vote will be required to
redefine what types of securities may be deemed illiquid. In accordance with
the Fund's policy prohibiting the Fund from acting as an underwriter, the Fund
will not purchase restricted securities for the purpose of subsequent
distribution in a manner which would cause the Fund to be deemed an
underwriter.
PERCENTAGE LIMITATIONS
The Fund's fundamental policy limits it to investing no more than 10% of
the value of its total assets in restricted and unmarketable securities. The
new operating policy to be adopted by the Board of Directors, if shareholders
approve elimination of the fundamental policy, would allow the Fund to invest
up to 15% of its net assets in illiquid securities. The 15% limitation
represents a higher percentage than the Fund was previously allowed to invest
in illiquid securities and is the result of a 1992 liberalization by the SEC
in this area. If the fundamental policy is changed to an operating policy, the
Fund will, without the necessity of any further shareholder vote, be able to
take advantage of any future changes in SEC policy in this area.
Notwithstanding the 15% limitation, in conformity with various state laws,
the Fund's new operating policy would limit the Fund to investing no more than
5% of its assets in restricted securities (other than Rule 144A securities)
and no more than 5% of its assets in the securities of unseasoned issuers (as
defined). Shareholders are being asked separately to eliminate the Fund's
fundamental policy on investing in unseasoned issuers. If that action is
approved, the Directors intend to incorporate the Fund's policy on investing
in unseasoned issuers with the Fund's policy on investing in illiquid
securities.
The Board of Directors recommends that shareholders vote FOR the proposal.
P. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON SHORT
SALES
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on effecting short sales be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote, while operating policies may be changed by the Board
of Directors without shareholder approval. The current policy of the Fund is
not required by applicable law to be fundamental. The purpose of the proposal
is to provide the Fund with greater flexibility in pursuing its investment
objective and program. The Board has directed that the proposal be submitted
to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of effecting short sales
of securities is as follows:
"[As a matter of fundamental policy, the Fund may not:] Effect short sales
of securities . . .;"
The operating policy on short sales, to be adopted by the Fund, would be
as follows:
"[As a matter of operating policy, the Fund may not:] Effect short sales
of securities;"
The current fundamental policy was formerly required by certain states to
be fundamental. This is no longer the case and the replacement of the policy
with an operating policy will adequately protect the Fund while providing
greater flexibility to the Fund to respond to market or regulatory
developments by allowing the Board of Directors the authority to make changes
in this policy without seeking further shareholder approval.
In a short sale, an investor, such as the Fund, sells a borrowed security
and must return the same security to the lender. Although the Board has no
current intention of allowing the Fund to engage in short sales, if the
proposed amendment is adopted, the Board would be able to authorize the Fund
to engage in short sales at any time without further shareholder action. In
such a case, the Fund's prospectus would be amended and a description of short
sales and their risks would be set forth therein.
The Board of Directors recommends that shareholders vote FOR the proposal.
Q. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON INVESTING IN UNSEASONED ISSUERS
The Board of Directors has proposed that the Fund's Fundamental Investment
Policy on investing in the securities of unseasoned issuers be eliminated and
replaced by a substantially similar operating policy. Fundamental policies may
only be changed with shareholder approval, while operating policies may be
changed by vote of the Board of Directors without shareholder approval. The
proposed change should provide the Fund with greater flexibility in responding
to market and regulatory developments without the necessity of seeking further
shareholder approval. The new restriction would also conform the Fund's policy
on investing in unseasoned issuers to one which is expected to become standard
for all T. Rowe Price Funds. The Board believes that standardized policies
will assist the Fund and T. Rowe Price in monitoring compliance with the
various investment restrictions to which the T. Rowe Price Funds are subject.
The Board has directed that such change be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of investing in
unseasoned issuers is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities) if, as a result: .
. . More than 5% of the value of the Fund's total assets would be invested
in the securities of issuers which at the time of purchase had been in
operation for less than three years including predecessors and
unconditional guarantors;"
The operating policy on investing in unseasoned issuers, to be adopted by
the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:] Purchase a security
(other than obligations issued or guaranteed by the U.S., any foreign,
state or local government, their agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be
invested in the securities of issuers which at the time of purchase had
been in operation for less than three years (for this purpose, the period
of operation of any issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer). This restriction
does not apply to securities of pooled investment vehicles or mortgage or
asset-backed securities;"
The new operating policy would add securities issued or guaranteed by
foreign, state or local governments, as well as securities of pooled
investment vehicles and mortgage and asset-backed securities, to the list of
those which are excluded from the percentage restriction on investing in
unseasoned issuers.
The Board of Directors recommends that shareholders vote FOR the proposal.
R. TO ELIMINATE THE FUND'S FUNDAMENTAL POLICY ON INVESTING IN WARRANTS
The Fund's Board of Directors has proposed that the Fund's Fundamental
Investment Policy on investing in warrants be eliminated and replaced with a
substantially similar operating policy. Fundamental policies may be changed
only by shareholder vote while operating policies may be changed by the Board
of Directors without the approval of shareholders. The current policy of the
Fund is not required by applicable law to be fundamental. Although the Fund
does not intend any change in its current policy on investing in warrants,
adoption of the proposal would allow the Fund to make a change without
shareholder vote. The new restriction would also conform the Fund's policy on
investing in warrants to one which is expected to become standard for all T.
Rowe Price Funds. The Board believes that standardized policies will assist
the Fund and T. Rowe Price in monitoring compliance with the various
investment restrictions to which the T. Rowe Price Funds are subject. The
Board has directed that the proposal be submitted to shareholders for approval
or disapproval.
The Fund's current fundamental policy in the area of investing in warrants
is as follows:
"[As a matter of fundamental policy, the Fund may not:] Purchase the
securities of any issuer if, as a result, more than 2% of the value of the
total assets of the Fund would be invested in warrants which are not
listed on the New York Stock Exchange, the American Stock Exchange, or
more than 5% of the value of the total assets of the Fund would be
invested in warrants whether or not so listed, such warrants in each case
to be valued at the lesser of cost or market, but assigning no value to
warrants acquired by the Fund in units with or attached to debt
securities."
The operating policy on investing in warrants, to be adopted by the Fund,
would be as follows:
"[As a matter of operating policy, the Fund may not:] Invest in warrants
if, as a result thereof, more than 2% of the value of the total assets of
the Fund would be invested in warrants which are not listed on the New
York Stock Exchange, the American Stock Exchange, or a recognized foreign
exchange, or more than 5% of the value of the total assets of the Fund
would be invested in warrants whether or not so listed. For purposes of
these percentage limitations, the warrants will be valued at the lower of
cost or market and warrants acquired by the Fund in units or attached to
securities may be deemed to be without value."
The current fundamental policy was formerly required by certain states to
be fundamental. This is no longer the case and the replacement of the policy
with an operating policy will adequately protect the Fund while providing
greater flexibility to the Fund to respond to market or regulatory
developments by allowing the Board of Directors the authority to make changes
in this policy without seeking further shareholder approval. Unlike the
current restriction, the new policy would allow the Fund to invest in warrants
listed on a recognized foreign exchange to the same extent that the Fund can
invest in warrants listed on the New York and American Stock Exchanges.
However, the new policy, like the current one, would still limit the Fund to
investing no more than 2% of the value of its total assets in unlisted
warrants and no more than 5% of the value of its total assets in warrants
whether or not listed. The new policy also states that warrants acquired by
the Fund in units or attached to securities may be deemed to be without value.
Such warrants may be acquired, for example, as "sweeteners" (i.e., for no
additional consideration) with respect to a transaction in which the Fund
acquires a security.
The Board of Directors recommends that shareholders vote FOR the proposal.
3. PROPOSAL TO AMEND THE FUND'S ARTICLES OF INCORPORATION TO ELIMINATE THE
POLICY ON PRICING SECURITIES
The Board of Directors has proposed that the Fund amend its Articles of
Incorporation by deleting subparagraph (iii) of Paragraph 3.04 (2) of Article
SEVENTH regarding the policy on pricing securities in its portfolio. The
manner in which the Fund prices its securities is currently set forth in the
Fund's Statement of Additional Information and the Fund's policy on pricing
securities is not required to be included in its Articles of Incorporation.
The purpose of the proposed amendment is to provide the Fund with greater
flexibility to respond to regulatory and market developments in pricing its
securities, should the need arise. Although there is no current intention to
change the manner in which the Fund's portfolio securities are priced, the
proposal, if adopted, would allow the Fund's Board of Directors to make
changes in the Fund's policy on pricing, in a manner consistent with
applicable law, without seeking further shareholder approval. The Board has
directed that the proposal be submitted to shareholders for approval or
disapproval.
The Fund's policy on pricing securities as stated in the Articles of
Incorporation is as follows:
"Article SEVENTH
(2) VALUATION OF ASSETS. The value of such assets is to be determined as
follows:
(iii) Securities. Securities listed or traded on a national securities
exchange ("Listed Securities") are valued at the last quoted sales
prices on the day the valuations are made. Listed securities that are
not traded on a particular day, and securities regularly traded in the
over-the-counter market, are valued at the price within the limits of
the latest bid and asked prices deemed by the Board of Directors, or by
persons delegated by the Board, best to reflect their fair value. All
other assets and securities are valued in the manner determined in good
faith by the Board, or its delegates, to reflect their fair value."
The Board of Directors recommends that these provisions of the Articles of
Incorporation be deleted and that the Fund's policy on pricing securities be
described only in the Fund's Statement of Additional Information.
The Board of Directors recommends that shareholders vote FOR the proposal.
4. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The selection by the Board of Directors of the firm of Price Waterhouse as
the independent accountants for the Fund for the fiscal year 1994 is to be
submitted for ratification or rejection by the shareholders at the
Shareholders Meeting. The firm of Price Waterhouse has served the Fund as
independent accountants since inception. The independent accountants have
advised the Fund that they have no direct or material indirect financial
interest in the Fund. Representatives of the firm of Price Waterhouse are
expected to be present at the Shareholders Meeting and will be available to
make a statement, if they desire to do so, and to respond to appropriate
questions which the shareholders may wish to address to them.
INVESTMENT MANAGER
The Fund's investment manager is T. Rowe Price, a Maryland corporation,
100 East Pratt Street, Baltimore, Maryland 21202. The principal executive
officer of T. Rowe Price is George J. Collins, who together with Mr. Riepe,
Thomas H. Broadus, Jr., James E. Halbkat, Jr., Carter O. Hoffman, Henry H.
Hopkins, George A. Roche, John W. Rosenblum, Charles H. Salisbury, Jr., Robert
L. Strickland, M. David Testa, and Philip C. Walsh, constitute its Board of
Directors. The address of each of these persons, with the exception of Messrs.
Halbkat, Rosenblum, Stickland and Walsh, is 100 East Pratt Street, Baltimore,
Maryland 21202, and, with the exception of Messrs. Halbkat, Rosenblum,
Strickland, and Walsh, all are employed by T. Rowe Price. Mr. Halbkat is
President of U.S. Monitor Corporation, a provider of public response systems,
P.O. Box 23109, Hilton Head Island, South Carolina 29925. Mr. Rosenblum, whose
address is P.O. Box 6550, Charlottesville, Virginia 22906, is the Tayloe
Murphy Professor at the University of Virginia, and a director of: Chesapeake
Corporation, a manufacturer of paper products; Cadmus Communications Corp., a
provider of printing and communication services; Comdial Corporation, a
manufacturer of telephone systems for businesses; and Cone Mills Corporation,
a textiles producer. Mr. Strickland is Chairman of Lowe's Companies, Inc., a
retailer of specialty home supplies, 604 Two Piedmont Plaza Building,
Winston-Salem, North Carolina 27104. Mr. Walsh, whose address is Blue Mill
Road, Morristown, New Jersey 07960, is a consultant to Cyprus Amax Minerals
Company, Englewood, Colorado, and a director of Piedmont Mining Company,
Charlotte, North Carolina.
The officers of the Fund (other than the nominees for election or
reelection as directors) and their positions with T. Rowe Price are as
follows:
- ------------------------------------------------------------------------------
Officer Position with Fund Position with Manager
- ------------------------------------------------------------------------------
Andrew M. Brooks Vice President Vice President
Arthur B. Cecil, Vice President Vice President
III
Brent W. Clum Vice President Vice President
Henry H. Hopkins Vice President Managing Director
Gregory A. Vice President Vice President
McCrickard
Larry J. Puglia Vice President Vice President
Richard T. Whitney Vice President Vice President
Lenora V. Hornung Secretary Vice President
Carmen F. Deyesu Treasurer Vice President
David S. Middleton Controller Vice President
Roger L. Fiery Assistant Vice Employee
President
Edward T. Assistant Employee
Schneider VicePresident
Ingrid I. Assistant Vice Employee
Vordemberge President
The Fund has an Underwriting Agreement with T. Rowe Price Investment
Services, Inc. ("Investment Services"), a Transfer Agency Agreement with T.
Rowe Price Services, Inc. ("Price Services") and an Agreement with T. Rowe
Price Retirement Plan Services, Inc., which are wholly-owned subsidiaries of
T. Rowe Price. In addition, the Fund has an Agreement with T. Rowe Price to
perform fund accounting services. James S. Riepe, Chairman of the Board of the
Fund, is Chairman of the Board of Price Services and Retirement Services and
President and Director of Investment Services. Henry H. Hopkins, a Vice
President of the Fund, is a Vice President and Director of both Investment
Services and Price Services and a Vice President of Retirement Services.
Edward T. Schneider, an Assistant Vice President of the Fund, is a Vice
President of Price Services. Certain officers of the Fund own shares of the
common stock of T. Rowe Price, its only class of securities.
The following information pertains to transactions involving common stock
of T. Rowe Price, par value $.20 per share ("Stock"), during the period
January 1, 1993 through December 31, 1993. There were no transactions during
the period by any director or officer of the Fund, or any director or officer
of T. Rowe Price which involved more than 1% of the outstanding Stock of T.
Rowe Price. These transactions did not involve, and should not be mistaken
for, transactions in the stock of the Fund.
During the period, the holders of certain options purchased a total of
343,525 shares of common stock at varying prices from $0.67 to $18.75 per
share. Pursuant to the terms of T. Rowe Price's Employee Stock Purchase Plan,
eligible employees of T. Rowe Price and its subsidiaries purchased an
aggregate of 96,931 shares at fair market value. Such shares were purchased in
the open market during this period for employees' accounts.
The Company's Board of Directors has approved the repurchase of shares of
its common stock in the open market. During 1993, the Company purchased 80,000
common shares under this plan, leaving 1,432,000 shares authorized for future
repurchase at December 31, 1993.
During the period, T. Rowe Price issued 1,154,000 common stock options
with an exercise price of $28.13 per share to certain employees under terms of
the 1990 and 1993 Stock Incentive Plans.
An audited consolidated balance sheet of T. Rowe Price as of December 31,
1993, is included in this Proxy Statement.
INVESTMENT MANAGEMENT AGREEMENT
T. Rowe Price serves as investment manager to the Fund pursuant to an
Investment Management Agreement dated May 1, 1987 (the "Management
Agreement"), which was approved by the shareholders of the Fund on April 21,
1987. By its terms, the Management Agreement will continue in effect from year
to year as long as it is approved annually by the Fund's Board of Directors
(at a meeting called for that purpose) or by vote of a majority of the Fund's
outstanding shares. In either case, renewal of the Management Agreement must
be approved by a majority of the Fund's independent directors. On March 1,
1994, the directors of the Fund, including all of the independent directors,
voted to extend the Management Agreement for an additional period of one year,
commencing May 1, 1994, and terminating April 30, 1995. The Management
Agreement is subject to termination by either party without penalty on 60
days' written notice to the other and will terminate automatically in the
event of assignment.
Under the Management Agreement, T. Rowe Price provides the Fund with
discretionary investment services. Specifically, T. Rowe Price is responsible
for supervising and directing the investments of the Fund in accordance with
the Fund's investment objectives, program, and restrictions as provided in its
prospectus and Statement of Additional Information. T. Rowe Price is also
responsible for effecting all securities transactions on behalf of the Fund,
including the negotiation of commissions and the allocation of principal
business and portfolio brokerage. In addition to these services, T. Rowe Price
provides the Fund with certain corporate administrative services, including:
maintaining the Fund's corporate existence and corporate records; registering
and qualifying Fund shares under federal and state laws; monitoring the
financial, accounting, and administrative functions of the Fund; maintaining
liaison with the agents employed by the Fund such as the Fund's custodian and
transfer agent; assisting the Fund in the coordination of such agents'
activities; and permitting T. Rowe Price's employees to serve as officers,
directors, and committee members of the Fund without cost to the Fund.
The Management Agreement also provides that T. Rowe Price, its directors,
officers, employees and certain other persons performing specific functions
for the Fund will only be liable to the Fund for losses resulting from willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.
The Management Agreement provides that the Fund will bear all expenses of
its operations not specifically assumed by T. Rowe Price. However, in
compliance with certain state regulations, T. Rowe Price will reimburse the
Fund for certain expenses which in any year exceed the limits prescribed by
any state in which the Fund's shares are qualified for sale. Presently, the
most restrictive expense ratio limitation imposed by any state is 2.5% of the
first $30 million of the Fund's average daily net assets, 2% of the next $70
million of the Fund's assets, and 1.5% of net assets in excess of $100
million. For the purpose of determining whether the Fund is entitled to
reimbursement, the expenses of the Fund are calculated on a monthly basis. If
the Fund is entitled to reimbursement, that month's management fee will be
reduced or postponed, with any adjustment made after the end of the year. For
the years ended December 31, 1993, 1992, and 1991, the ratios of operating
expenses to average net assets of the Fund were .83%, .85%, and .93%,
respectively.
For its services to the Fund under the Management Agreement, T. Rowe Price
is paid a management fee ("Management Fee") consisting of two elements: a
"group" fee ("Group Fee") and an "individual" fund fee ("Individual Fund
Fee"). The Group Fee varies and is based on the combined net assets of all of
the Price Funds distributed by T. Rowe Price Investment Services, Inc., other
than institutional or "private label" products. For this purpose, the Price
Funds include all funds managed and sponsored by T. Rowe Price as well as
those Funds managed and sponsored by Rowe Price-Fleming International, Inc.
The Fund pays, as its portion of the Group Fee, an amount equal to the ratio
of its daily net assets to the daily net assets of all the Price Funds. The
Fund pays a flat Individual Fund Fee of 0.15% based on the net assets of the
Fund. Based on combined Price Funds' assets of approximately $34.7 billion at
December 31, 1993, the Group Fee was 0.35% and the total management fee for
the year would have been an annual rate of 0.50% of net assets. At December
31, 1993, the net assets of the Fund were $1,167,493,920, and a management fee
of $5,209,477 was paid by the Fund to T. Rowe Price.
PORTFOLIO TRANSACTIONS
INVESTMENT OR BROKERAGE DISCRETION
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Fund are made by T. Rowe Price. T. Rowe Price is also
responsible for implementing these decisions, including the negotiation of
commissions and the allocation of portfolio brokerage and principal business.
HOW BROKERS AND DEALERS ARE SELECTED
EQUITY SECURITIES
In purchasing and selling the Fund's portfolio securities, it is T. Rowe
Price's policy to obtain quality execution at the most favorable prices
through responsible brokers and dealers and, in the case of agency
transactions, at competitive commission rates. However, under certain
conditions, the Fund may pay higher brokerage commissions in return for
brokerage and research services. As a general practice, over-the-counter
orders are executed with market-makers. In selecting among market-makers, T.
Rowe Price generally seeks to select those it believes to be actively and
effectively trading the security being purchased or sold. In selecting
broker-dealers to execute the Fund's portfolio transactions, consideration is
given to such factors as the price of the security, the rate of the
commission, the size and difficulty of the order, the reliability, integrity,
financial condition, general execution and operational capabilities of
competing brokers and dealers, and brokerage and research services provided by
them. It is not the policy of T. Rowe Price to seek the lowest available
commission rate where it is believed that a broker or dealer charging a higher
commission rate would offer greater reliability or provide better price or
execution.
FIXED INCOME SECURITIES
Fixed income securities are generally purchased from the issuer or a
primary market-maker acting as principal for the securities on a net basis,
with no brokerage commission being paid by the client. Transactions placed
through dealers serving as primary market-makers reflect the spread between
the bid and asked prices. Securities may also be purchased from underwriters
at prices which include underwriting fees.
With respect to equity and fixed income securities, T. Rowe Price may
effect principal transactions on behalf of the Fund with a broker or dealer
who furnishes brokerage and/or research services, designate any such broker or
dealer to receive selling concessions, discounts or other allowances, or
otherwise deal with any such broker or dealer in connection with the
acquisition of securities in underwritings.
HOW EVALUATIONS ARE MADE OF THE OVERALL REASONABLENESS OF BROKERAGE
COMMISSIONS PAID
On a continuing basis, T. Rowe Price seeks to determine what levels of
commission rates are reasonable in the marketplace for transactions executed
on behalf of the Fund. In evaluating the reasonableness of commission rates,
T. Rowe Price considers: (a) historical commission rates, both before and
since rates have been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c) rates quoted
by brokers and dealers; (d) the size of a particular transaction, in terms of
the number of shares, dollar amount, and number of clients involved; (e) the
complexity of a particular transaction in terms of both execution and
settlement; (f) the level and type of business done with a particular firm
over a period of time; and (g) the extent to which the broker or dealer has
capital at risk in the transaction.
DESCRIPTION OF RESEARCH SERVICES RECEIVED FROM BROKERS AND DEALERS
T. Rowe Price receives a wide range of research services from brokers and
dealers. These services include information on the economy, industries, groups
of securities, individual companies, statistical information, accounting and
tax law interpretations, political developments, legal developments affecting
portfolio securities, technical market action, pricing and appraisal services,
credit analysis, risk measurement analysis, performance analysis and analysis
of corporate responsibility issues. These services provide both domestic and
international perspective. Research services are received primarily in the
form of written reports, computer generated services, telephone contacts and
personal meetings with security analysts. In addition, such services may be
provided in the form of meetings arranged with corporate and industry
spokespersons, economists, academicians and government representatives. In
some cases, research services are generated by third parties but are provided
to T. Rowe Price by or through broker-dealers.
Research services received from brokers and dealers are supplemental to T.
Rowe Price's own research effort and, when utilized, are subject to internal
analysis before being incorporated by T. Rowe Price into its investment
process. As a practical matter, it would not be possible for T. Rowe Price's
Equity Research Division to generate all of the information presently provided
by brokers and dealers. T. Rowe Price pays cash for certain research services
received from external sources. T. Rowe Price also allocates brokerage for
research services which are available for cash. While receipt of research
services from brokerage firms has not reduced T. Rowe Price's normal research
activities, the expenses of T. Rowe Price could be materially increased if it
attempted to generate such additional information through its own staff. To
the extent that research services of value are provided by brokers or dealers,
T. Rowe Price may be relieved of expenses which it might otherwise bear.
T. Rowe Price has a policy of not allocating brokerage business in return
for products or services other than brokerage or research services. In
accordance with the provisions of Section 28(e) of the Securities Exchange Act
of 1934, T. Rowe Price may from time to time receive services and products
which serve both research and non-research functions. In such event, T. Rowe
Price makes a good faith determination of the anticipated research and
non-research use of the product or service and allocates brokerage only with
respect to the research component.
COMMISSIONS TO BROKERS WHO FURNISH RESEARCH SERVICES
Certain brokers who provide quality execution services also furnish
research services to T. Rowe Price. In order to be assured of continuing to
receive research services considered of value to its clients, T. Rowe Price
has adopted a brokerage allocation policy embodying the concepts of Section
28(e) of the Securities Exchange Act of 1934, which permits an investment
adviser to cause an account to pay commission rates in excess of those another
broker or dealer would have charged for effecting the same transaction, if the
adviser determines in good faith that the commission paid is reasonable in
relation to the value of the brokerage and research services provided. The
determination may be viewed in terms of either the particular transaction
involved or the overall responsibilities of the adviser with respect to the
accounts over which it exercises investment discretion. Accordingly, while T.
Rowe Price cannot readily determine the extent to which commission rates or
net prices charged by broker-dealers reflect the value of their research
services, T. Rowe Price would expect to assess the reasonableness of
commissions in light of the total brokerage and research services provided by
each particular broker.
INTERNAL ALLOCATION PROCEDURES
T. Rowe Price has a policy of not precommitting a specific amount of
business to any broker or dealer over any specific time period. Historically,
the majority of brokerage placement has been determined by the needs of a
specific transaction such as market-making, availability of a buyer or seller
of a particular security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for that portion of
its discretionary client brokerage business where special needs do not exist,
or where the business may be allocated among several brokers which are able to
meet the needs of the transaction.
Each year, T. Rowe Price assesses the contribution of the brokerage and
research services provided by brokers, and attempts to allocate a portion of
its brokerage business in response to these assessments. Research analysts,
counselors, various investment committees, and the Trading Department each
seek to evaluate the brokerage and research services they receive from brokers
and make judgments as to the level of business which would recognize such
services. In addition, brokers sometimes suggest a level of business they
would like to receive in return for the various brokerage and research
services they provide. Actual brokerage received by any firm may be less than
the suggested allocations but can, and often does, exceed the suggestions,
because the total brokerage business is allocated on the basis of all the
considerations described above. In no case is a broker excluded from receiving
business from T. Rowe Price because it has not been identified as providing
research services.
MISCELLANEOUS
T. Rowe Price's brokerage allocation policy is consistently applied to all
its fully discretionary accounts, which represent a substantial majority of
all assets under management. Research services furnished by brokers through
which T. Rowe Price effects securities transactions may be used in servicing
all accounts (including non-Fund accounts) managed by T. Rowe Price.
Conversely, research services received from brokers which execute transactions
for the Fund are not necessarily used by T. Rowe Price exclusively in
connection with the management of the Fund.
From time to time, orders for clients may be placed through a computerized
transaction network.
The Fund does not allocate business to any broker-dealer on the basis of
its sales of the Fund's shares. However, this does not mean that
broker-dealers who purchase Fund shares for their clients will not receive
business from the Fund.
Some of T. Rowe Price's other clients have investment objectives and
programs similar to those of the Fund. T. Rowe Price may occasionally make
recommendations to other clients which result in their purchasing or selling
securities simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold may
increase, and this could have an adverse effect on the price of those
securities. It is T. Rowe Price's policy not to favor one client over another
in making recommendations or in placing orders. T. Rowe Price frequently
follows the practice of grouping orders of various clients for execution which
generally results in lower commission rates being attained. In certain cases,
where the aggregate order is executed in a series of transactions at various
prices on a given day, each participating client's proportionate share of such
order reflects the average price paid or received with respect to the total
order. T. Rowe Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a company for
its clients (including the Price Funds) if, as a result of such purchases, 10%
or more of the outstanding common stock of such company would be held by its
clients in the aggregate.
To the extent possible, T. Rowe Price intends to recapture solicitation
fees paid in connection with tender offers through T. Rowe Price Investment
Services, Inc., the Fund's distributor. At the present time, T. Rowe Price
does not recapture commissions or underwriting discounts or selling group
concessions in connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate elimination of
all or a portion of the selling-group concession or underwriting discount when
purchasing tax-exempt municipal securities on behalf of its clients in
underwritten offerings.
TRANSACTIONS WITH RELATED BROKERS AND DEALERS
As provided in the Investment Management Agreement between the Fund and T.
Rowe Price, T. Rowe Price is responsible not only for making decisions with
respect to the purchase and sale of the Fund's portfolio securities, but also
for implementing these decisions, including the negotiation of commissions and
the allocation of portfolio brokerage and principal business. It is expected
that T. Rowe Price may place orders for the Fund's portfolio transactions with
broker-dealers through the same trading desk T. Rowe Price uses for portfolio
transactions in domestic securities. The trading desk accesses brokers and
dealers in various markets in which the Fund's foreign securities are located.
These brokers and dealers may include certain affiliates of Robert Fleming
Holdings Limited ("Robert Fleming Holdings") and Jardine Fleming Group Limited
("JFG"), persons indirectly related to T. Rowe Price. Robert Fleming Holdings,
through Copthall Overseas Limited, a wholly-owned subsidiary, owns 25% of the
common stock of Rowe Price-Fleming International, Inc. ("RPFI"), an investment
adviser registered under the Investment Advisers Act of 1940. Fifty percent of
the common stock of RPFI is owned by TRP Finance, Inc., a wholly-owned
subsidiary of T. Rowe Price, and the remaining 25% is owned by Jardine Fleming
Holdings Limited, a subsidiary of JFG. JFG is 50% owned by Robert Fleming
Holdings and 50% owned by Jardine Matheson Holdings Limited. Orders for the
Fund's portfolio transactions placed with affiliates of Robert Fleming
Holdings and JFG will result in commissions being received by such affiliates.
The Board of Directors of the Fund has authorized T. Rowe Price to utilize
certain affiliates of Robert Fleming Holdings and JFG in the capacity of
broker in connection with the execution of the Fund's portfolio transactions.
These affiliates include, but are not limited to, Jardine Fleming Securities
Limited ("JFS"), a wholly-owned subsidiary of JFG, Robert Fleming & Co.
Limited ("RF&Co."), Jardine Fleming Australia Securities Limited, and Robert
Fleming, Inc. (a New York brokerage firm). Other affiliates of Robert Fleming
Holdings and JFG also may be used. Although it does not believe that the
Fund's use of these brokers would be subject to Section 17(e) of the 1940 Act,
the Board of Directors of the Fund has agreed that the procedures set forth in
Rule 17e-1 under that Act will be followed when using such brokers.
OTHER
For the years ended December 31, 1993, 1992, and 1991, the total brokerage
commissions paid by the Fund, including the discounts received by securities
dealers in connection with underwritings, were $2,815,000, $2,218,000, and
$2,051,000, respectively. Of these commissions, approximately 27%, 24%, and
31%, respectively, were paid to firms which provided research, statistical, or
other services to T. Rowe Price in connection with the management of the Fund
or, in some cases, to the Fund.
The portfolio turnover rate for the Fund for each of the last three years
has been as follows: 1993--22.4%, 1992--29.9%, and 1991--47.9%.
OTHER BUSINESS
The management of the Fund knows of no other business which may come
before the meeting. However, if any additional matters are properly presented
at the meeting, it is intended that the persons named in the enclosed proxy,
or their substitutes, will vote such proxy in accordance with their judgment
on such matters.
GENERAL INFORMATION
As of December 31, 1993, there were 70,450,668 shares of the capital stock
of the Fund outstanding, each with a par value of $.01. Of those shares,
approximately 26,586,051, representing 37.7% of the outstanding stock, were
registered to the T. Rowe Price Trust Company as Trustee for participants in
the T. Rowe Price Funds Retirement Plan for Self-Employed (Keogh), as Trustee
for participants in T. Rowe Price Funds 401(k) plans, as Custodian for
participants in the T. Rowe Price Funds Individual Retirement Account (IRA),
as Custodian for participants in various 403(b)(7) plans, and as Custodian for
various Profit Sharing and Money Purchase plans. The T. Rowe Price Trust
Company has no beneficial interest in such accounts, nor in any other account
for which it may serve as trustee or custodian.
As of December 31, 1993, approximately 72,974 shares of the Fund,
representing approximately 0.10% of the outstanding stock, were owned by
various private counsel clients of
T. Rowe Price, as to which T. Rowe Price has discretionary authority.
Accordingly, such shares are deemed to be owned beneficially by T. Rowe Price
only for the limited purpose as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934. T. Rowe Price disclaims actual beneficial
ownership of such shares. In addition, as of December 31, 1993, a wholly-owned
subsidiary of T. Rowe Price owned directly 58,565 shares of the Fund
representing approximately 0.08% of the outstanding stock.
As of December 31, 1993, the officers and directors of the Fund, as a
group, beneficially owned, directly or indirectly, 35,279 shares, representing
approximately 0.05% of the Fund's outstanding stock. The ownership of the
officers and directors reflects their proportionate interests, if any, in
3,789 shares of the Fund which are owned by a wholly-owned subsidiary of the
Fund's investment manager, T. Rowe Price, and their interests in 14,329 shares
owned by the T. Rowe Price Associates, Inc. Profit Sharing Trust.
A copy of the Annual Report of the Fund for the year ended December 31,
1993, including financial statements, has been mailed to shareholders of
record at the close of business on that date and to persons who became
shareholders of record between that time and the close of business on February
18, 1994, the record date for the determination of the shareholders who are
entitled to be notified of and to vote at the meeting.
ANNUAL MEETINGS
Under Maryland General Corporation Law, any corporation registered under
the 1940 Act is not required to hold an annual meeting in any year in which
the 1940 Act does not require action by shareholders on the election of
directors. The Board of Directors of the Fund has determined that in order to
avoid the significant expense associated with holding annual meetings,
including legal, accounting, printing and mailing fees incurred in preparing
proxy materials, the Fund will take advantage of these Maryland law
provisions. Accordingly, no annual meetings shall be held in any year in which
a meeting is not otherwise required to be held by the 1940 Act for the
election of Directors unless the Board of Directors otherwise determines that
there should be an annual meeting. However, special meetings will be held in
accordance with applicable law or when otherwise determined by the Board of
Directors. The Fund's By-Laws reflect this policy.
SHAREHOLDER PROPOSALS
If a shareholder wishes to present a proposal to be included in the Proxy
Statement for the next Annual Meeting, and if such Annual Meeting is held in
April, 1995, such proposal must be submitted in writing and received by the
Corporation's Secretary at its Baltimore office prior to November 8, 1994.
FINANCIAL STATEMENT OF INVESTMENT MANAGER
The audited consolidated balance sheet of T. Rowe Price which follows is
required by the 1940 Act, and should not be confused with, or mistaken for,
the financial statements of T. Rowe Price Growth & Income Fund, Inc., which
are set forth in the Annual Report of the Fund.
T. ROWE PRICE ASSOCIATES,INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(in thousands)
ASSETS
Cash and cash equivalents ................................... $ 46,218
Accounts receivable ......................................... 43,102
Investments in sponsored mutual funds
Short-term bond and money market mutual funds held as
trading securities .......................................... 27,647
Other funds held as available-for-sale securities ......... 69,423
Partnership and other investments ........................... 19,606
Property and equipment ...................................... 39,828
Goodwill and deferred expenses .............................. 9,773
Other assets ................................................ 7,803
-------------
$263,400
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses ..................... $ 15,111
Accrued retirement and other compensation costs ........... 19,844
Income taxes payable ...................................... 5,097
Dividends payable ......................................... 3,784
Debt ...................................................... 12,915
Deferred revenues ......................................... 1,548
Minority interests in consolidated subsidiaries ........... 9,148
Total liabilities ..................................... 67,447
Commitments and contingent liabilities
Stockholders' equity
Common stock, $.20 par value--authorized 48,000,000 shares;
issued and outstanding 29,095,039 shares .................... 5,819
Capital in excess of par value .............................. 1,197
Unrealized security holding gains ........................... 5,345
Retained earnings ........................................... 183,592
Total stockholders' equity ............................ 195,953
-------------
$263,400
-------------
The accompanying notes are an integral part of the consolidated balance sheet.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
"Company") provide investment advisory and administrative services to
sponsored mutual funds and investment products, and to private accounts of
other institutional and individual investors.
BASIS OF PREPARATION
The Company's financial statements are prepared in accordance with generally
accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all majority
owned subsidiaries and, by virtue of the Company's controlling interest, its
50%-owned subsidiary, Rowe Price-Fleming International, Inc. ("RPFI"). All
material intercompany accounts are eliminated in consolidation.
CASH EQUIVALENTS
For purposes of financial statement disclosure, cash equivalents consist of
all short-term, highly liquid investments including certain money market
mutual funds and all overnight commercial paper investments. The cost of these
investments is equivalent to fair value.
INVESTMENTS IN SPONSORED MUTUAL FUNDS
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires the Company to state its mutual fund
investments at fair value and to classify these holdings as either trading
(held for only a short period of time) or available-for-sale securities.
Unrealized holding gains on available-for-sale securities at December 31, 1993
are reported net of income tax effects in a separate component of
stockholders' equity.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk as defined by SFAS No. 105 consist primarily of investments in
sponsored money market and bond mutual funds and accounts receivable. Credit
risk is believed to be minimal in that counterparties to these financial
instruments have substantial assets including the diversified portfolios under
management by the Company which aggregate $54.4 billion at December 31, 1993.
PARTNERSHIP AND OTHER INVESTMENTS
The Company invests in various partnerships and ventures including those
sponsored by the Company. These investments which hold equity securities,
venture capital investments, debt securities and real estate are stated at
cost adjusted for the Company's share of the earnings or losses of the
investees subsequent to the date of investment. Because the majority of these
entities carry their investments at fair value and include unrealized gains
and losses in their reported earnings, the Company's carrying value for these
investments approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost net of accumulated depreciation and
amortization computed using the straight-line method. Provisions for
depreciation and amortization are based on the following estimated useful
lives: computer and communications equipment and furniture and other
equipment, 3 to 7 years; building, 40 years; leased land, the 50-year lease
term; and leasehold improvements, the shorter of their useful lives or the
remainder of the lease term.
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1--INVESTMENTS IN SPONSORED MUTUAL FUNDS
Investments in sponsored money market mutual funds, which are classified as
cash equivalents in the accompanying consolidated financial statements,
aggregate $45,272,000 at December 31, 1993.
The Company's investments in sponsored mutual funds held as available-for-sale
at December 31, 1993 (in thousands) includes:
Gross
unrealized Aggregate
Aggregate holding fair
cost gains value
------------------------------------------------
Stock funds ......... $34,990 $7,025 $42,015
Bond funds .......... 26,190 1,218 27,408
Total ........... $61,180 $8,243 $69,423
------------------------------------------------
The Company provides investment advisory and administrative services to the T.
Rowe Price family of mutual funds which had aggregate assets under management
at December 31, 1993 of $34.7 billion. All services rendered by the Company
are provided under contracts that set forth the services to be provided and
the fees to be charged. These contracts are subject to periodic review and
approval by each of the funds' boards of directors and, with respect to
investment advisory contracts, also by the funds' shareholders. Services
rendered to the funds accounted for 71% of 1993 revenues.
Accounts receivable from the sponsored mutual funds aggregated $21,741,000
at December 31, 1993.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993 (in thousands) consists of:
Computer and communications equipment $31,431
Building and leased land ............. 19,756
Furniture and other equipment ........ 13,889
Leasehold improvements ............... 4,691
-------------
69,767
Accumulated depreciation and
amortization ......................... (29,939)
-------------
$39,828
-------------
NOTE 3--GOODWILL AND DEFERRED EXPENSES
On September 2, 1992, the Company acquired an investment management subsidiary
of USF&G Corporation and combined six USF&G mutual funds with aggregate net
assets of $.5 billion into the T. Rowe Price family of funds. The total
transaction cost which has been recognized using the purchase method of
accounting was approximately $11,024,000, including goodwill of $8,139,000
which is being amortized over 11 years using the straight-line method. Prepaid
non-compete and transition services agreements totaling $2,500,000 are being
amortized over their three-year life. Accumulated amortization at December 31,
1993 aggregates $2,216,000.
Goodwill of $1,980,000 from an earlier corporate acquisition is being
amortized over 40 years using the straight-line method. Accumulated
amortization was $1,039,000 at December 31, 1993.
NOTE 4--DEBT
In June 1991, the Company completed the long-term financing arrangements for
its administrative services facility. Terms of the $13,500,000 secured
promissory note with Confederation Life Insurance Company include an interest
rate of 9.77%, monthly principal and interest payments totaling $128,000 for
10 years, and a final principal payment of $9,845,000 in 2001. A prepayment
option is available under the terms of the note; however, the payment of a
substantial premium would have been required to retire the debt at December
31, 1993. Related debt issuance costs of $436,000 are included in deferred
expenses and are being amortized over the life of the loan to produce an
effective annual interest rate of 10.14%.
The outstanding principal balance for this note was $12,904,000 at
December 31, 1993. A fair value of $16,030,000 was estimated based on the cost
of risk-free assets that could be acquired to extinguish the obligation at
December 31, 1993.
A maximum of $20,000,000 is available to the Company under unused bank
lines of credit at December 31, 1993.
NOTE 5--INCOME TAXES
Deferred income taxes arise from differences between taxable income for
financial statement and income tax return purposes and are calculated using
the liability method prescribed by SFAS No. 109, "Accounting for Income
Taxes."
The net deferred tax liability of $2,596,000 included in income taxes
payable at December 31, 1993 consists of total deferred tax liabilities of
$5,609,000 and total deferred tax assets of $3,013,000. Deferred tax
liabilities include $2,898,000 arising from unrealized holding gains on
available-for-sale securities, $1,353,000 arising from unrealized capital
gains allocated from the Company's partnership investments, and $677,000 from
differences in the recognition of depreciation expense. Deferred tax assets
include $1,100,000 from differences in the recognition of the costs of the
defined benefit retirement plan and postretirement benefits.
NOTE 6--COMMON STOCK AND EMPLOYEE STOCK INCENTIVE PLANS
SHARES AUTHORIZED
At December 31, 1993, the Company had reserved 8,151,315 shares of its
unissued common stock for issuance upon the exercise of stock options and
420,000 shares for issuance under an employee stock purchase plan.
SHARE REPURCHASES
The Company's board of directors has authorized the future repurchase of up to
1,432,000 common shares at December 31, 1993.
EXECUTIVE STOCK
At December 31, 1993, there were outstanding 1,226,540 shares of common stock
("Executive Stock") which were sold to certain officers of the Company in 1982
at a discount. These shares are subject to restrictions which require payment
of the discount of $.32 per share to the Company at the earlier of the sale of
such stock or termination of employment.
STOCK INCENTIVE PLANS
The following table summarizes the status of noncompensatory stock options
granted at market value to certain officers and directors of the Company.
Options
Unexercised Options Unexercised Exercisable
Options at Options Granted Options at at
Year December Exercised (Canceled) December December
of 31, During During 31, 31, Exercise
Grant 1992 1993 1993 1993 1993 Price
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1983-4 53,000 (30,600) -- 22,400 22,400 $.67 & $.75
$5.38 &
1987 309,410 (68,064) -- 241,346 241,346 $9.38
1988 359,000 (66,586) -- 292,414 292,414 $7.94
1989 632,280 (46,288) (5,600) 580,392 312,404 $11.38
$7.19 &
1990 681,500 (83,387) (11,800) 586,313 141,313 $8.50
1991 811,450 (37,000) (14,000) 760,450 283,450 $17.00
1992 926,000 (11,600) (27,400) 887,000 168,600 $18.75
1993 -- -- 1,154,000 1,154,000 -- $28.13
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3,772,640 (343,525) 1,095,200 4,524,315 1,461,927
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The right to exercise stock options generally vests over the five-year period
following the grant. After the tenth year following the grant, the right to
exercise the related stock options lapses and the options are canceled.
NOTE 7--EMPLOYEE RETIREMENT PLANS
The Company sponsors two defined contribution retirement plans: a
profit-sharing plan based on participant compensation and a 401(k) plan.
The Company also has a defined benefit plan covering those employees whose
annual base salaries do not exceed a specified salary limit. Participant
benefits are based on the final month's base pay and years of service
subsequent to January 1, 1987. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. The following table sets forth the plan's funded status and the
amounts recognized in the Company's consolidated balance sheet (in thousands)
at December 31, 1993.
Actuarial present value of
Accumulated benefit obligation for service
rendered
Vested ........................................ $ 780
Non-vested .................................... 1,362
-------------
Total ......................................... 2,142
Obligation attributable to estimated future
compensation increases ............................ 2,594
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Projected benefit obligation .................... 4,736
Plan assets held in sponsored mutual funds, at fair
value ............................................. 2,594
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Projected benefit obligation in excess of plan
assets ............................................ 2,142
Unrecognized loss from decreases in discount rate . 407
-------------
Accrued retirement costs .......................... $1,735
-------------
Discount rate used in determining actuarial present
values 6.40%
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NOTE 8--COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a minority partner in the joint venture which owns the land and
building in which the Company leases its corporate offices. Future minimum
rental payments under the Company's lease agreement are $3,110,000 in 1994 and
1995, $3,220,000 in 1996, $3,769,000 in 1997 and 1998, and $33,755,000 in 1999
through 2006.
The Company leases office facilities and equipment under other
noncancelable operating leases. Future minimum rental payments under these
leases aggregate $4,621,000 in 1994, $4,123,000 in 1995, $1,776,000 in 1996,
$1,259,000 in 1997, $696,000 in 1998, and $4,806,000 in later years.
At December 31, 1993, the Company had outstanding commitments to invest an
additional $6,757,000 in various investment partnerships and ventures.
The Company has contingent obligations at December 31, 1993 under a
$500,000 direct pay letter of credit expiring not later than 1999 and a
$780,000 standby letter of credit which is renewable annually.
Consolidated stockholders' equity at December 31, 1993 includes
$32,635,000 which is restricted as to use under various regulations and
agreements to which the Company and its subsidiaries are subject in the
ordinary course of business.
From time to time, the Company is a party to various employment-related
claims, including claims of discrimination, before federal, state and local
administrative agencies and courts. The Company vigorously defends itself
against these claims. In the opinion of management, after consultation with
counsel, it is unlikely that any adverse determination in one or more pending
employment-related claims would have a material adverse effect on the
Company's financial position.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of T. Rowe Price Associates, Inc.
In our opinion, the accompanying consolidated balance sheet presents fairly,
in all material respects, the financial position of T. Rowe Price Associates,
Inc. and its subsidiaries at December 31, 1993 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Company's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
January 25, 1994
T.ROWEPRICE PROXY
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INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the reverse side. If
you do not check a box, your vote will be cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed postage paid
envelope, even if you will be attending the meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
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T. ROWE PRICE GROWTH & INCOME FUND, INC. MEETING: 9:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen W. Boesel and James S. Riepe, as
proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of stock of the
Fund, which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, April 20, 1994, at the time indicated
above, at the offices of the Fund, 100 East Pratt Street, Baltimore, Maryland
21202, and at any and all adjournments thereof, with respect to the matters
set forth below and described in the Notice of Annual Meeting and Proxy
Statement dated March 8, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name appears. Only
authorized officers should sign for
corporations. For information as to the
voting of stock registered in more than one
name, see page 3 of the Notice of Annual
Meeting and Proxy Statement.
Dated: -------------------------------, 1994
--------------------------------------------
--------------------------------------------
Signature(s)
CUSIP#779551100/fund#054
T.ROWEPRICE WE NEED YOUR PROXY VOTE BEFORE APRIL 20, 1994
- ------------------------------------------------------------------------------
Please refer to the Proxy Statement discussion of each of these matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.
Please fold and detach card at perforation before mailing.
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1. Election of FOR all nominees WITHHOLD AUTHORITY 1.
directors listed below (except to vote for all
as marked to the nominees listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Leo C. Bailey Stephen W. Boesel Donald W. Dick, Jr. David K. Fagin
Addison Lanier John K. Major Hanne M. Merriman James S. Riepe
M. David Testa Hubert D. Vos Paul M. Wythes
2. Approve changes to FOR each policy ABSTAIN 2.
the Fund's listed below
fundamental policies. (except as marked
to the contrary)
If you do NOT wish to approve a policy change, please check the appropriate
box below:
(A) Borrowing (F) Real Estate (K) Pledging (O) Illiquid
Assets Securities
(B) Commodities & (G) Senior (L) Oil & Gas (P) Short Sales
Futures Securities
(C) Lending (H) Control (M) Options (Q) Unseasoned
Issuers
(D) Single Issuer (I) Investment (N) Ownership of (R) Warrants
Companies Securities
(E) Purchasing (J) Purchasing on
Securities Margin
3. Amend Articles of Incorporation to delete policy on pricing securities.
FOR AGAINST ABSTAIN 3.
4. Ratify the selection of Price Waterhouse as independent accountants. FOR
AGAINST ABSTAIN 4.
5. I authorize the Proxies, in their discretion, to vote upon such other
business as may properly come before the meeting.
CUSIP#779551100/fund#054